Gold in Resolution
Gold in Resolution
One way or another, 2024 is setting up to be a historic year for gold.
“Information is the resolution of uncertainty.” – Claude Shannon
February 24, 2024, is likely to be quite a momentous day. Aside from marking the second anniversary of the current military conflict between Russia and Ukraine, all indications suggest the Group of Seven (G7) countries—a cohort that formally includes Canada, France, Germany, Italy, Japan, the UK, and the US, but has morphed into the de facto decision-making body of the collective West—will use the symbolism of this tragic milestone as covering fire to complete the seizure of some $300 billion worth of Russian reserve assets.
The suggested move comes amid growing reluctance in both the US and Europe to continue directly funding Ukraine. With the military situation on the ground turning more desperate by the day, a marketing campaign for this highly controversial proposal is underway. An excerpt from a recent guest editorial in the Financial Times sets the tone with the rather direct title, “Seizing Russian assets is the right thing to do” (emphasis added throughout):
“Western nations were reported last month to have been actively exploring the move as political resistance in the US and elsewhere grows to increasing direct financial support to Ukraine in its fight against invading Russia.
Seizing the assets has raised worries about the consequences for the financial system, namely that some countries such as China might come to fear that reserves held in euros or dollars were no longer safe. But they shouldn’t. If countries don’t illegally invade other countries, their money is quite safe.
The EU and the US should take Russia’s frozen assets and give them to Ukraine. It is the right thing to do and there are historical precedents for both confiscating foreign assets during a time of war and allocating war reparations claims after.”
Backing for the move is far from unanimous, especially among European countries. With Putin having dumped most of his US treasuries long ago, the vast majority of relevant assets are situated within the EU banking system where many are loath to set such a profound and potentially dangerous precedent. There is also the pesky question of what Russia would do in retaliation, something the G7 seems destined to perpetually underestimate. Here is Reuters framing the view from Moscow:
“Russian officials have repeatedly warned that the state confiscation of assets goes against all the principles of free markets.
‘Let's see what they decide,’ one senior Russian official told Reuters on condition of anonymity. ‘The protection of private property is a sacred cow that has been feeding them for many centuries.’
Some Russian officials have suggested that if Russian assets are confiscated then foreign investors' assets stuck in special so-called type "C" accounts in Russia could face the same fate. Some foreign assets were effectively locked in the C accounts. It is not clear exactly how much money is in these accounts but Russian officials have said it is comparable to the $300 billion of Russian reserves frozen.”
Should the G7 move forward, it will certainly be observed by the rest of the world. The resulting interpretations could add fuel to a series of recent shifts that have brought renewed focus to gold’s place in the financial system. Over the coming months, changes in geopolitics and market structure may finally resolve longstanding laments of goldbugs the world over.
With the price of everyone’s favorite precious metal recently setting a new all-time high (as measured in US dollars, at least), is 2024 going to be gold’s year? Let’s crack open the vault and indulge in some informed speculation.