Lau here, and for once not from a hotel room.
There's a chart I wanted to share with you this Monday. It shows the dollar's share of the world's allocated foreign exchange reserves. In plain English, how much of the money central banks hold in reserve sits in dollars rather than euros, yen or anything else.
As you can see, the dollar accounted for 71.5% of those reserves as recently as 2001. By the end of last year that was down to 56.4%, the lowest reading since 1995.
Watching the dollar’s story unfold is a bit like watching a train wreck in very slow motion. Year to year, nothing much happens. You even get a bump here and there. But step back far enough and the trajectory is unmistakable. Fifteen percentage points, gone.
All of this was back on my mind last week while I was putting together SNAFU Investing's first monthly issue, which went out on Saturday (linked here and below, along with the other piece from last week).
There’s a reason the inaugural issue carries a gold recommendation, and the chart above is a good deal of it. Because the obvious question it raises is what those same institutions have been putting their money into instead.
Gold.
As I show in the issue, since 2022 central banks as a group have bought roughly 1,000 tons of it a year. About double what they averaged over the previous decade. And when the price spiked earlier this year and buying tailed off for a quarter, what did they do in the next one, after the price had fallen? Came back with a vengeance. 289 metric tons.
Which brings me to the part of the story I find most interesting, and the reason this month’s pick is what it is.
The world wants more gold, yes. The trouble is, the mining industry simply isn’t finding enough of it.
I get into all of that, and a good deal more, in the issue. So if you’re a paid subscriber, make sure you haven’t missed it. If you're not, the lead is free to everyone (and if you've been on the fence, this might be a good moment to come inside).
August Issue: A Gold Squeeze, and a New Recommendation
A word before we start. This is the first of the SNAFU Investing monthly issues, and they’ll come at the end of each month. This one carries a new gold recommendation, below the paywall.
The U.S. Just Smashed Through $40 Trillion in Debt
You may not have noticed it amid the ongoing Iran war and everything else going on right now, but the U.S. just smashed through another historic fiscal milestone: $40 trillion in national debt.
From the Comments
One of the things I’ve come to appreciate most about writing here is the conversation that happens in the comments. Here are five that stood out last week, for different reasons. Each one links back to the piece it appeared on, so you can click through if you’re interested in the context.
Thanks again to everyone who left a comment last week. I read all of them, even the ones I don’t get a chance to reply to individually. Over the coming days, I’ll try to catch up on the questions and the longer threads.
Regards,
Lau Vegys
P.S. On a slightly related note, one of our precious metals positions in the portfolio started building its new mine last week. Fully financed, no debt, and no trip back to the market to pay for it. The money is coming from cash on hand and the mine it already operates.
That’s about six weeks from recommendation to groundbreaking with nothing having gone sideways in between, which in this sector is worth noting.
Paid subscribers, a proper alert follows tomorrow.
Buongiorno
Partendo dal 2001 quando le banche hanno cominciato ad accumulare Oro subito dopo nell arco di pochi anni l Oro è schizzato di 6/7 volte del prezzo
Ma poi dal 2008 ad ora e' aumentato molto meno nonostante il massiccio acquisto da parte delle banche e stati
Addirittura anziché apprezzarsi all attacco di Trump all Iran l Oro ha subito una perdita molto importante de 30 % ! nonostante il colossale e impagabile debito dell America
Colpendo di sorpresa Gran parte di esperti
Finché esisterà l' oro di carta chi ha il timone in mano fa' il proprio interesse!!
Continuando il proprio sporco gioco
Per fortuna la Cina ha vietato di acquistare la carta ma l Oro fisico
Avrà influenza su' Londra e New york?
C è speranza
Hi Lau,
You've noted the 25+/-year trend of Central Banks shedding dollar reserves for gold—a sharp pivot from the early 2000s when they ironically sold gold at historic lows. They often seem reactive, but we have to take a cue from them given their immense power to move markets.
At the same time, dollar dominance in global commerce has surged over the past 60 years via the Eurodollar market, now estimated at over $100 trillion outside the Fed's jurisdiction. As Treasury-backed stablecoins systematically gain prominence, I suspect they will eventually replace these legacy Eurodollars.
I would be very interested to hear your thoughts on how these two massive shifts will unfold over the coming years and decades. As always, I love and value your insights.
Regards,
Baku