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TD on Gold: How The Dollar Dies

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by VBL
Friday, Mar 17, 2023 - 10:00

TD on Gold: How The Dollar Dies

"The West is losing control over commodity pricing mechanisms"- Daniel Ghali

Authored by Goldfix

While reviewing a Gold report by TD Bank's Senior Commodity strategist Daniel Ghali last night, the opening line (subtitle of this post) was of a  much bigger picture and secular importance than the Gold market on which it was supposed to be reporting. It was kind of shocking to see that in a macro Gold report frankly. It went on to say:

This [the West’s loss of control over commodity pricing] is a slowburning theme with significant implications for pricing, inflation, currencies and geopolitics over the coming decade.

We could not agree more.

After that first paragraph the report went back to assessing Gold prices given the backdrop of the current banking crisis. That first paragraph was very important however. It is what will drive prices for years. It is why you will buy the dip in commodities going forward.

 

Here is TD Bank's Daniel Ghali's statement in context

The West is losing control over commodity pricing mechanisms. This slowburning theme has significant implications for pricing, inflation, currencies and geopolitics over the coming decade. Over the coming trading sessions, however, the theme is still relevant and argues against fading the apparent overvaluation observed across several commodities markets.

It describes secular changes now serving as tailwinds for the pricing of Gold, Silver, and commodities in general. That paragraph is about the demise of the Dollar as the sole global reserve currency.It is also reminding us about a world physically divided and how that division will manifest in the food we eat, the cars we drive, and the prices we pay; something we have discussed here several times.

 

SECULAR TRENDS ARE NOW MACRO TRENDS

Why bring this up today? Macro analysts are picking up on it. That means it is on their radar and what is slowburning to them, is heating up from where we sit. Put another way: slowburning but flames are being fanned now.

 

Pic From The New Top down model

What these analysts, (BOAs Hartnett and Daniel Ghali today) are noting is the dollar’s troubled status due to commodity demand and thus pricing power moving eastward.They are now seeing it manifest in macro analysis.

Starting with the Ukraine war (Covid actually) our world divided with the East taking its commodity collateral back while the West took its Finances back . That was the beginning of global monetary multipolarity.

 

HOW THE DOLLAR DIES

Those concepts, if they interest you, were most recently discussed with Tom Luongo in detail on his podcast a couple weeks ago. Podcast Episode #135 – Vince Lanci and How We Return to Gold-Backed Money

Here is the actual path to the end of dollar dominance in practical terms as laid out in that podcast and here in 4 clear steps. This is happening right now for all world to see. It is how the concepts Zoltan Pozsar so frequently talks about manifest. These are the flows that create demand for new plumbing being built

  1. Commodity exchanges do best in the regions of demand, not supply- That demand growth is eastward now.

  2. As demand moves east, so do delivery points for goods- Physical trade dictates exchange delivery locations

  3. As delivery points move east, local exchanges in the East get more volumes-  Business moves to where the money is- SHFE, ICEX, DGCX

  4. As volumes grow, local demand wants the commodity settled in the local dominant currency.- First a dollar/Yuan swap, then a Yuan or some other currency settled contract to satisfy  local buyers

 

The “Reserve Currency” label and mostly academic hang-wringing will catch up to these realities as outlined above years from now but this is 100% the path things will take well before the announcement on your TV of the dollar’s death. If the dollar dies (it is dying now) this will be the path. If it is not needed for trade, it is not needed.What can save the dollar from a multipolar world you ask? Nothing except maybe a global depression and/or a larger scale war.

The key is volume migration as proxy for physical trade dominance 1as measured on global commodity exchanges.

 

HOW WE GOT HERE

For the past 10 years industrial commodity and Gold demand has moved eastward. Then commodity firms moved their salesmen, offices, and storage vaults east to accommodate growing business demand. JPM, GS, and trading firms like Vitol did this years ago.The US sanctions have accelerated this trend.

We have withdrawn our demand for their commodities, which is deflationary for them and inflationary for us. Now it is about who can survive longest without the other.Part of that can be observed by looking at commodity exchange volumes in other parts of the world as a percent of the US.And it is growing. When it reaches critical mass, there will be a need for local currency pricing. And that is the end of the USD as global currency.

THE CUSTOMER IS ALWAYS RIGHT

Don’t let anyone tell you otherwise. If the customer is always right, and the customer is in China, then the customer will ask for change in Yuan, not dollars.And Western banks will give it to him. This is inevitable now. It will not be pretty for either side. But war never is; and this is war.

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