Economist: Gold will become the new reserve asset by 2030

US Treasuries will be eliminated as global reserves by 2030 as the US dollar reprices from “massively overvalued” levels, raising gold yields by about 3 times, said Luke Gromen, founder and president of Forest for the Trees. .

The economic policies of the past 40 years are being deliberately “ignored” in the United States, which will have a huge impact on everything from US Treasuries to the dollar, Gromen said in a televised interview with Kitco News economic programs anchor Michelle McCurry. To gold.

He added, over the past few decades, the United States has tended to export Treasuries and reduced the export of everything else, and that is what is changing now.

He added, “What Janet Yellen is saying, what the US Treasury Department is saying, what National Security Advisor Jake Sullivan is saying, and what the Department of Defense is saying is that it is in the national security interest to get out of the business of exporting Treasuries and get into the export of goods.”

"But we can't do that without a much weaker dollar, and the price of gold will be the arbiter of that. We're seeing US Treasury Secretary Janet Yellen throwing 40 years of economic orthodoxy in the trash," he continued.

This shift from Yellen, whose focus is on the dollar, is significant. “This is analogous to what happened when former President Richard Nixon closed the golden window, decoupling the link between gold and the dollar,” Grumin said. In the future, “the bond market will lose... Its value is $130 trillion and its position in the markets as a reserve asset.”

Gromen explains that the dollar system is dying, with US Treasuries losing their status as the world's main reserve asset, which is why the dollar will be repriced. However, Gromen rules out replacing the US dollar, stating that it will remain the global reserve currency.

The US Treasury market has lost its share as a primary global reserve asset since 2014 because global central banks sold $400 billion worth of Treasuries and bought $600 billion worth of gold.

“Global central banks stopped buying US Treasuries ten years ago on a net basis, US debt has not stopped growing, and there is a widening gap between the supply of US Treasuries and demand from global central banks,” Gromen said.

Gromin pointed out that gold witnessed strong gains this year, rising by 12.5% ​​since the beginning of the year until now, after recording several new record levels, and will continue to rise until 2030.

“Everything macroeconomically says the economy is going to keep going up, while the BRICS are turning to gold, you see Yellen throwing 40 years of economic orthodoxy in the trash, and you see the Fed saying we won’t do that,” he added. "Let's let the disruption in the Treasury market happen by adding liquidity when it's needed."

He pointed out that the alternative to treasury bonds as a global reserve asset is gold, and treasury bonds for central banks are no longer risk-free tools. If they do something that the United States government does not like, they will take treasury bonds - just like they did with Russia and others, which opened the eyes of... Countries".

Gromin pointed out that no one trusts the Chinese yuan when it comes to finding another reserve option, and even if they did, China does not want to open its capital account and issue debt.

He added, “Gold is doing what it is doing, because it is replacing Treasuries as the main reserve asset globally at the central bank level, and while that is happening, that represents a lot of buying against a gold market that has an annual output of $240 billion.”

“Markets are starting to reflexively realize that dysfunction in the Treasury market is not going to be allowed on a sustainable basis, and in this case you have a $130 trillion global bond market that is increasingly putting pressure on the $65 trillion U.S. stock market,” Gromen said. "Approximately 14 trillion dollars."

That's why there were spikes in the charts for the S&P 500, Nasdaq and gold on long bonds, he added. “All of this has happened in the last 18 to 24 months. Those are signs that the bond market is realizing that, on a real basis,  the bubble is in long-term U.S. Treasuries.”

To put gold's upcoming multi-year rally in perspective, gold's move higher has not yet begun, Jeromin said.

He added,  “For reversion to mean to reflect being the primary reserve asset, its price would have to be higher by an order of magnitude.”

To get a more nuanced look, Grumin looks at the market value of official US gold compared to outstanding foreign-owned Treasuries.

"In 1989, when the Soviet Union collapsed, that was 20%. When we had the dollar crisis in 1979 and 1980, it was 134%. Fast forward to today, that's 7%. So gold would need to triple." "Just to get back to the bottom of that range where we were in 1989, which was the last time we had great power competition."

Hence, Grumin expects that the target price for an ounce will range between $7,000 and $15,000 by 2030.