How Will CBDCs Impact Gold Prices?

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China has launched its CBDC and continues to invest heavily in gold. There is palpable tension among Western central banks to keep up and assert their dominance.

The introduction of central bank digital currencies (CBDCs) seems inevitable, with significant potential repercussions for the gold market. While touted for their convenience and efficiency, CBDCs also herald a broader shift towards increased governmental oversight and control over individual finances. This could include automatic deductions for liabilities like taxes or fines and proactive measures like spending caps or direct withdrawals to combat inflation—tools that grant governments and possibly corporations significant power.

Globally, as countries such as China push forward with their CBDC initiatives and continue to invest heavily in precious metals, there's a palpable tension among Western central banks to not only keep up but also assert their dominance. This dynamic is part of a broader struggle for financial supremacy on the world stage, which may persist for many years.

The move towards a cashless society could usher in stricter regulations and even bans on certain financial practices, including investments in precious metals. The U.S. government's recall of bullion gold during the Great Depression provides a stark historical precedent for such measures in times of economic distress.

Advancements in blockchain and the potential for a global economic downturn could accelerate the adoption of CBDCs. Once operational, these digital currencies will enable central banks to exert an unparalleled level of control over monetary policy and personal financial transactions.

A 2023 report from the Bank for International Settlements discusses how CBDCs could transform the financial landscape by enabling programmable transactions and creating new economic possibilities through a unified ledger system.

“As well as improving existing processes through the seamless integration of transactions, a unified ledger could harness programmability to enable arrangements that are currently not practicable, thereby expanding the universe of possible economic outcomes.”

Zimbabwe's experiment with a gold-backed CBDC is a novel approach that merges digital and traditional monetary systems. However, ensuring the integrity of such a system requires protocols to prevent the falsification of the gold supply.

While it's unlikely that Western CBDCs will incorporate gold backing, central banks are expected to maintain substantial gold reserves as a fallback, highlighting the enduring value of physical gold despite digital advancements. Gold is the third largest reserve currency of central banks.

If CBDCs become widespread and restrictions on private gold ownership are imposed, gold and silver may emerge as essential mediums for barter and trade, providing one of the last refuges for private transactions outside the reach of a centralized financial network.

The gold market's reaction to the 1933 Executive Order demanding U.S. citizens hand over their bullion gold—a significant price increase—could be indicative of what might happen with the rollout of CBDCs and the elimination of paper currency.

Gold vs USD Pre and Post-Executive Order 6102

1933 gold chart after gold recall

Despite resistance from some legislators who view CBDCs as an overreach, the momentum towards their broad adoption seems likely, perhaps promoted as a stabilizing solution in the aftermath of a major financial crisis. In such a regulated financial landscape, precious metals might not only retain but increase their value, becoming crucial for those seeking to preserve financial autonomy and survival in a digitally dominated economy.

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