You Won't Believe This... The Fed Might Do GOLD QE

Here's a comprehensive summary of the YouTube video transcript:

Key Concepts

• Gold QE (Quantitative Easing): A hypothetical scenario where the Federal Reserve might engage in actions related to gold that mimic the effects of traditional QE, potentially involving the revaluation of US Treasury gold holdings.
• Gold Price Surge: The significant increase in the price of gold, with the transcript noting a 45% year-to-date gain.
• US Treasury Gold Holdings: The substantial amount of gold owned by the US government, stated as 8,100 tons.
• Balance Sheet Discrepancy: The vast difference between the book value of US Treasury gold (around $11 billion) and its market value (approaching $1 trillion at current prices).
• Monetization of Gold: The process by which the government could convert the unrealized gains from its gold holdings into spendable currency.
• Gold Revaluation: The act of updating the value of gold reserves on a balance sheet to reflect current market prices.
• Treasury General Account (TGA): The US Treasury's primary checking account at the Federal Reserve.
• Quantitative Easing (QE): A monetary policy tool where a central bank purchases securities to inject liquidity into the economy.
• Counterparty Risk: The risk that one party in a financial transaction will default on their contractual obligations.
• Commercial Bank QE: The concept that when commercial banks purchase assets from non-bank entities, it effectively acts as QE by increasing the money supply.
• Monetary Metals: A company offering a service to earn interest in precious metals on physical gold and silver holdings.

Gold Price Performance and Potential

The video begins by highlighting the impressive performance of gold, presenting a chart showing its price trajectory from October 2024. The speaker notes that gold is currently trading around $3,863 and expresses a high probability of it reaching $4,000 in the near future, with the potential for further increases. This is contrasted with the S&P 500's year-to-date gain of 13%, emphasizing gold's superior performance with a 45% increase. The speaker asserts that "45% is better than 13%."

US Treasury Gold Holdings and Balance Sheet Discrepancy

The transcript then shifts to the perspective of "central planners" at the Federal Reserve and Treasury, who are observing gold's price surge. A key point is the US government's ownership of 8,100 tons of gold. The transcript reveals a significant discrepancy: the government values these holdings at only $11 billion on its balance sheet, while at current market prices (around $4,000 per ounce), their actual worth is approximately $990 billion, nearing $1 trillion. This "massive spread" is seen by the speaker as an opportunity for politicians to "cash in" and "monetize this" unrealized gain, potentially for personal gain, political favors, or to fund government contractors.

The Mechanism of "Gold QE" and Revaluation

The video explains how this "gold QE" could theoretically work, referencing a Zero Hedge article titled "Gold Revaluation Imminent: US Treasury Hoard Tops $1 Trillion For The First Time." The article states that the US Treasury's gold holdings have surpassed $1 trillion in value due to the 45% surge.

A crucial technical detail is explained: "Unlike most countries, the US gold is held by the government directly rather than the central bank. The Fed instead holds gold certificates corresponding to the value of the Treasury's holding and credits the government with dollars in return." This means that updating the value of these reserves to market prices would "unleash roughly $990 billion into the treasury's coffers." The speaker rounds this up to "an even $1 trillion."

The transcript notes that other countries, such as Germany, Italy, and South Africa, have revalued their gold reserves in recent decades. The revaluation would increase the size of both the Treasury and the Fed's balance sheets, allowing the Treasury General Account (TGA) to be used for "Treasury priorities," which the speaker interprets as a euphemism for politicians enriching themselves and their associates. The Fed and Treasury would effectively "magically conjure up some $990 billion out of thin air to be spent on whatever."

Knock-on Effects and Inflationary Potential

The video then delves into the potential consequences of this revaluation and monetization. The speaker uses a simplified model of "your drunk insolvent Uncle Sam" (representing the US government) to illustrate the balance sheet changes.

• Initial State: The Fed has $11 billion in assets (gold certificates) and $11 billion in liabilities. Uncle Sam's TGA has a balance, and the Fed's balance sheet reflects this.
• The "Trick": By simply updating the value of the gold certificates on the Fed's balance sheet from $11 billion to $1 trillion, the government effectively creates nearly a trillion dollars.
• Spending Power: This newly recognized wealth allows Uncle Sam to "spend even more money" into the economy.

The key argument here is that this is fundamentally different from traditional government spending. Normally, the government must raise money through debt (selling treasuries) or taxes, which involves taking money out of the economy before spending it. This "gold QE" scenario, however, involves injecting "brand new money that literally didn't exist before."

The speaker's "base case" is that this would "likely lead to inflation or at least inflation prices going up higher than they otherwise would have." However, nuance is introduced:

• Spending Destination: If the $1 trillion is sent to Ukraine, it might not significantly impact US inflation as it's not chasing US goods and services.
• UBI/Stimulus Checks: If spent on Universal Basic Income (UBI) or stimulus checks, it would lead to more currency units chasing goods and services, increasing both the "money supply" and "velocity" (as recipients have a high propensity to spend).

Impact on the Price of Gold

Contrary to what one might expect, the speaker believes this "gold QE" scenario would "probably not that much" impact on the actual price of gold in the short to medium term.

• Gold as an Inflation Hedge: Gold is a hedge against inflation over "decades," not necessarily a direct short-term correlation with CPI.
• Short-Term Hedge: Gold is more of a hedge against "counterparty risk."
• Current Drivers: The recent surge in gold prices is attributed to central banks buying gold and capital flowing into gold ETFs.
• Retail Investor Behavior: Despite the price increase, the speaker notes that "retail investor[s]... are still net sellers of gold." This is evidenced by low premiums on physical gold purchases, unlike the peak in 2011 when retail investors drove up premiums.
• Conclusion on Gold Price: While this specific "gold QE" might not directly drive the price higher, when combined with other factors, the probabilities suggest the gold price will likely be higher in the next six months to a year.

The Bombshell: Commercial Bank QE

The video culminates with a "bombshell" revelation: the concept of "commercial bank QE." The speaker posits that when commercial banks buy assets from non-bank entities (individuals or the Treasury), it is "effectively quantitative easing."

• Example: If JP Morgan buys $1 million worth of gold from an individual, JP Morgan's balance sheet increases by $1 million (asset). To pay the individual, JP Morgan creates $1 million in cash, which is added to the individual's account. This increases the money supply by $1 million, mirroring the effect of the Fed's QE.
• Key Insight: "While most people are focused, hyperfocused on exactly what the Fed's doing every single second, you as prudent investors should focus on the Fed, but you should also even more so focus on what the banks are doing because at the end of the day, the commercial banks are actually more important than the central banks."

Monetary Metals Sponsorship

The latter part of the transcript is a sponsorship segment for "Monetary Metals," a company that allows investors to earn interest in precious metals on their physical gold and silver holdings. The service claims to offer opportunities to be paid about 4% interest, paid in additional precious metals, not fiat currency. The speaker shares a personal endorsement, having set up an account and finding it beneficial. The website provided is monetary-medals.com/gamin.