Moment of Truth: The Coming Physical Gold Squeeze That Will Break The Paper Markets

Key Concepts

• Bare Market in Trust: A decline in confidence in Western financial, monetary, geopolitical, and property rights systems.
• De-globalization: The reversal of global integration, leading to increased national control and protectionism.
• Gold ETFs (Exchange Traded Funds): Investment vehicles that track the price of gold, often used by traditional fund managers for gold exposure.
• Tonnage: The total weight of gold held by ETFs, indicating the actual physical gold backing and shares outstanding.
• Authorized Participants: Market makers within ETFs responsible for creating and redeeming ETF shares, requiring them to buy or sell physical gold.
• Central Bank Buying: Strategic purchases of gold by national banks, a significant driver of current gold price increases.
• Spot Market: The market for immediate delivery of physical commodities like gold, contrasting with futures or paper contracts.
• Goods Availability Act: A Dutch emergency law allowing the government to seize control of companies deemed critical for economic security.
• Rare Earth Minerals: Essential components for advanced technologies, including electric vehicles and defense systems, with China being a major producer.
• Bifurcation: The division of the global economy into distinct blocs, driven by geopolitical tensions and trade wars.
• Negative Compounding: A situation where debt grows faster than the economy's ability to repay it, leading to an exponential increase in debt burden.

Summary

The Paradigm Shift: Beyond a Gold Bull Run to a Bare Market in Trust

Simon Mikovich argues that the current surge in gold prices is not merely a typical bull market but signifies the early stages of a "bare market in trust." This concept refers to a fundamental decline in confidence in Western financial systems, monetary arrangements, geopolitical stability, and property rights. This shift is driven by increasing debt, unsustainable fiscal policies in the West, and a growing distrust in the ability of the United States to maintain its hegemonic superpower status and control over the global financial system.

Gold ETFs: A Misleading Indicator of Western Investor Sentiment

While gold prices are exhibiting parabolic growth, an analysis of Gold ETFs reveals that Western investors are not yet significantly increasing their exposure. The tonnage of gold held in global ETFs, a measure of shares outstanding and actual gold backing, has only modestly increased since 2012 and is still slightly below its October 2020 levels. This indicates that current price gains are primarily driven by strategic buyers like central banks and non-Western investors, rather than a broad-based influx of Western retail or institutional capital seeking safety. The increase in Assets Under Management (AUM) is largely a function of rising prices, not net new investment.

The "Walk on the Bank" and the Inevitability of Change

Mikovich likens the current situation to a "walk on the bank" rather than a "run," suggesting a gradual but accelerating erosion of confidence. He emphasizes that investors deal in probabilities, and the increasing likelihood of negative geopolitical and economic events necessitates a demand for safety. This demand for safety is inversely proportional to confidence in existing arrangements. He posits that strategic buyers, particularly central banks, are driving gold demand due to declining trust in Western systems.

Central Bank Buying and the Stealth Nationalization of Critical Industries

Central banks have been significant buyers of gold, acquiring over 1,200 tons in 2025 alone, outpacing mining supply. This "stealth nationalization" is seen as a response to the erosion of trust in Western financial systems. The recent Dutch government's invocation of the Goods Availability Act to seize control of Nexperia, a Chinese-owned chip giant, is presented as a stark example of this trend. This action, occurring shortly after China announced export controls on critical materials like rare earth minerals, signifies a move towards de-globalization and a heightened focus on national economic security.

The Nexperia Seizure: A "Freezing of Russian Reserves 2.0"

Mikovich views the Nexperia seizure as a significant escalation, akin to the freezing of Russian reserves. He connects it to China's impending export controls on critical goods, which could cripple Western industries reliant on these materials. The Dutch action is seen as a retaliatory or preemptive measure, signaling a willingness by Western governments to assert control over strategically vital assets. This event, along with the freezing of Russian assets, has demonstrably damaged confidence in property rights for non-Western entities.

The Risk of Gold Confiscation and Capital Controls

While gold confiscation is considered an "extremely low probability event," Mikovich argues that in the context of escalating financial and national security threats, the probability of such actions increases significantly. He draws parallels to cascading failures in medical or military situations, where a low-probability event can trigger a chain reaction leading to near-certainty of dire outcomes. He suggests that as financial problems become national security threats, governments may resort to extreme measures, including capital controls, increased taxation, and restrictions on asset ownership.

The Unhealthy Leveraged Economy and the Stock Market's Vulnerability

The current economic structure is described as "very unhealthy" due to its extreme reliance on the stock market. A small percentage of Americans (10%) account for a disproportionate share of spending, federal income taxes, and stock ownership. This makes the entire economy, federal revenues, and consumer spending highly vulnerable to stock market fluctuations. A significant market crash could have severe repercussions, increasing the likelihood of government intervention and potentially extreme measures to protect the system.

Conclusion: A Fundamental Change in Operating Conditions

The overarching message is that the world is undergoing a "massive fundamental change" in its operating conditions, assumptions about property rights, and global economic arrangements. The era of unquestioned Western financial dominance and the sanctity of property rights for all is being challenged. While not predicting Armageddon, Mikovich stresses that these are significant, long-term shifts that investors need to understand to position themselves strategically for the future. The demand for gold is a symptom of this declining trust and the search for safety in an increasingly uncertain world.