China Is Preparing For $38,000 Gold

Last week, something happened in China that has never happened before. The biggest exchange-traded fund in the whole country that ordinary Chinese people put their money into is now a gold ETF. So let me explain. Here in the US, we have something called the S&P 500. That's where most people invest their money, represented by ETFs like VOO. Well, China has an equivalent of that fund as well. That's this fund right here. This is China's S&P 500. And just recently, another ETF surpassed it. That ETF is this one, Huang Yifu Gold ETF. It's now $13 billion versus $12 billion in stocks. So in the second biggest economy in the world, the biggest chunk of retail investor money is now sitting in gold. Now, what's interesting is that this is happening while gold prices are kind of crashing. Remember, gold peaked at around $5,600 an ounce earlier this year, and then it went down almost 30% below $4,000. And while that was happening, China was buying way more gold. And it's not just ordinary retail people from China. It's also the People's Bank of China. They just bought gold for the 20th month in a row, which is the longest streak going back to at least 2015. In June, they bought almost 15 tons of gold, which is also the biggest monthly buy since October, 2023. China also imported roughly 700 tons of gold in just the first five months of this year, and over 14,000 tons combined since 2015. And it's not just the People's Bank of China. It's also the world's central banks that are buying gold as well. 41 tons net in May alone. There's also countries buying gold. Countries like Poland, Uzbekistan, Kazakhstan. Everyone's buying gold. And in a couple weeks, on July 24th, four of China's biggest banks are shutting down retail gold trading, which means if you're an ordinary Chinese citizen and you want to buy gold, China wants to make sure you're buying the real thing and not just the paper representation of gold. Now again, if this were just China, this would be a huge story. But two weeks ago, the Treasury Secretary of the United States was in New York and he published a Wall Street Journal op-ed and that paper basically outlined what the U.S. is planning to do. And what it's planning to do is a return to an economic system named after Alexander Hamilton. The treasurer has been to Fort Knox. I am happy to say all gold is present and accounted for. The U.S. has the largest pile of gold in the world, over a trillion dollars at current market value. Scott Bassett's plan for the U.S. economy is what's referred to as Hamiltonian economics. And that paper explains every single chart I just showed you and all the things we'll talk about in this video, which is why China's buying, why central banks won't stop buying, and why some analysts calculate the math of the global economy only balances out when gold reaches $38,000 per ounce. That's kind of crazy to think about. So in this video, I wanna explain what's going on, what this means for the price of gold in our portfolios in the future. So with that said, this is gonna be a very interesting video, so let's get into it. Hi, my name is Andrei Jikh. Hope you're doing well. Come for the finance and stay for the gold. So I wanna give credit to Luke Grumman from FFTT. He put out a brilliant piece about this where he connected all these dots, including Scott Bassett's op-ed, where he talked about Hamiltonian economics, which is basically an outline for how a country becomes the richest and most powerful country in the world. It's how countries become superpowers. And every country that ever got rich did it this same way. And how they do it is they cheat, right? They use protective policies and taxes, and after they win, they preach to the rest of the world that other countries should trade freely and not manipulate their prices. They're like, hey guys, I'm done cheating. I won. You can't cheat anymore, okay? Here's how it actually works. We have to go back to December 5th, 1791. That's when Alexander Hamilton, America's first treasury secretary, the guy on the $10 bill, basically goes to Congress and he creates this plan, which is based on his report on manufacturers. Now that report set the standard for how the U.S. would operate for the next 150 years. Here's some background, by the way. At the time, the U.S. was essentially a startup country. It had about 4 million people, most of which were farmers, and it had virtually no factories. Almost everything that was manufactured, like tools and weapons, that was imported from the British Empire, the same empire that the U.S. just fought a war to get away from. So Hamilton creates this plan and he says, a nation that cannot make the things it needs is not actually an independent nation. It doesn't matter what your constitution says if your economy depends on your adversary. Then you're just a colony still with extra steps, right? So his solution was a two-part plan. The first part of the plan was tariffs or taxes on foreign goods. The second part were subsidies for American industry. The idea was to protect young American companies, which he called infant industries, until they got big enough and efficient enough to compete with anyone in the world. This became the U.S. operating system for about 150 years. And thanks to the U.S. using this master plan throughout all the 1800s, the U.S. was able to go from a country of farmers with no factories to a country that became the biggest industrial power in the world. In fact, Trump actually gave a speech about it earlier this year where he referenced a return to that system. As I said in my speech last week, instead of taxing our citizens to enrich foreign nations, we should be tariffing and taxing foreign nations to enrich our citizens. Does that make sense, right? Anyway, that's the system he's referring to here. This is part of that Hamiltonian economics, which is what makes countries rich and powerful. Now, inevitably though, this plan has always led to the destruction of every single empire in history where another country rose up and took power. And here's how this is happening to the United States right now. Now, before I get into that, there's something I've been meaning to talk about because it affects all of us, which is that the American healthcare system can be tough in a lot of ways and one of the hardest things about it is just how hard it is to book an appointment to see a healthcare provider. In fact, the average wait time to see a new doctor in the US is 31 days and in some cities, it's over 40. And as soon as you call, you get put on hold, you find out they don't take your insurance and then you have to start all over. And I'm guilty of this too because I've been putting off an annual physical for almost a year because every time I thought about booking it, the excuse was that I'm too busy, I'll do it after the next video, next month for sure, which is kind of crazy because I'll check my portfolio maybe five times a day, but not the most important asset I own, which is my health. And what finally snapped me out of it was hitting another birthday because my health is the one asset I can't buy back and that's the whole reason ZocDoc, today's video sponsor, exists. It's a free website where you can search local in-network doctors, compare detailed profiles with reviews from real patients and choose the one that fits what you're looking for. Then you see their actual appointment slots and book instantly right there. They have access to over 150,000 providers across more than 200 specialties in all 50 states. Appointments typically happen within 24 to 72 hours and sometimes you can get one on the same day. And that's exactly how I finally booked that physical and the whole thing took maybe five minutes and I was in the office within 48 hours. Having it done that fast took a weight off my shoulders I didn't realize I was carrying. And I know it seems small, but clicking the link in the description down below is a big step toward prioritizing your health. So head to ZocDoc.com forward slash Andre to get started and check that appointment off your to-do list. Again, the link is down below and now let's get back to the video. So here's how a country goes from being the global empire to another country taking over that status. The most recent example in history is of course the British Empire, which for them started in 1846. That's when Britain got rid of something called the Corn Laws and it converted to the religion of preaching free trade to the world. They're like, guys, we won the game. Let's not cheat anymore and let's sell stuff to each other at fair market prices. And all the other countries are like, yeah, well, you're saying that now after you cheated Hamiltonian economics, right? High tariffs, subsidies, protective policies. So now you don't want anyone else to cheat. Okay, now by 1931, Britain stopped being the global empire. Why? That's because Britain slowly de-industrialized, meaning their factories closed, industry moved to other countries and by 1931, the British Empire was done. The global leadership was transferred to the U.S. and it became the global superpower. That process took about 85 years and it's why most people don't really notice this happening, but it's happening to the U.S. right now. And for the U.S., it started in 1971. That's the year that the dollar came off the gold standard, which eventually led to factories leaving the U.S. Now here's a question though. Why do factories have to leave? Like why does this de-industrialization process have to happen? And it happens because of something called securitization. It's when a country creates a paper market for itself, which means for that country, more and more of its income starts to come from shuffling paper around instead of making real things. Now all empires eventually financialized their economies by creating stock markets and financial products, but in doing so, that creates all the structural incentives for the beginning of the end of their empire. Because when you financialize, you're like, let's increase the value of our country. How do we do that? Forget about building things, that takes money and risk, it's expensive. I have a better idea. Let's buy our own stuff. Like our own stocks. That's what's known in stock market as share buybacks. And also let's increase our income. How do we do that? By lowering our costs. Let's use cheaper parts imported from somewhere else and let's not give the job to the American worker because they're expensive, give it to someone in another country that makes less. Boom, factories leave, stock prices go up, you become richer and richer on paper. And as you were doing it, you were stripping the nation of its ability to make stuff. And given a long enough period of time, like over 85 years of doing that, you become naked. You have no capacity to build things like weapons to defend yourself with. And if and when a conflict breaks out, where you're supposed to protect your own country's interests, you're left exposed because you can't. You're rich with your own made up funny money, but you've got nothing real that's left of your economy. And the people who make your stuff for you, they're your adversary. And your enemy is not gonna take your funny money to build bombs for you so you can police the world. Okay, but in giving up this industry, what does a country get in return? What we got is infinite choice to buy lots of different brands and we can buy stuff for cheap, right? Here's how that looks like. Since the year 2000, the price of TVs went down 98%. The price of toys went down 74%. Software went down 73%. But everything that couldn't be shipped from China, that went the other way. That's why housing went up 111%. Childcare went up 159%. College tuition went up almost 200%. Hospital services went up 281% because that's the trade we made. America was sold off and we hollowed out the economy from the inside and the asset owners got richer on paper. Consumers got unlimited choices to buy cheap stuff. And in exchange, the sovereign or the nation itself gave up its industrial base and the kind of high paying jobs that used to let one income buy a house. That's what happens to an empire when it financializes its economy for almost 100 years. So now the US is looking around and we're like, wait, stop, how do we command Z undo this? Like how do we get our stuff back? It's gonna come back. It's gonna come roaring back. It's all gonna come roaring back. We're gonna put tariffs on outside countries and outside people that really mean us harm. They want to, well, they mean us harm but they basically wanna make their country good. Look at what others do. That's what the people in Trump's administration are trying to posture with. They're trying to go back to this Hamiltonian economic system. Okay, but how do we know that this is what they're really trying to do? And how we know this is because in January of this year, Jameson Greer, who's the US trade representative gave a speech at Davos where he talked about the United States going back to that Hamiltonian economic system. And then two weeks later, the US attacked Iran and the news cycle moved on and forgot about it. But then on June 23rd, Treasury Secretary Scott Besant was in New York and he put out that Wall Street op-ed paper, literally named Hamilton Inspires Trump's Economic Statecraft. And in that paper, he talked about five core principles of what he wants the US to do. The first one is economic security starts with national capacity, meaning we need to be able to make things again. We need factories. Two, America's openness will be matched by reciprocity, meaning if you let us sell our stuff in your country, you can sell your stuff in ours. Okay, three, America will rewrite the rules of the next economy. That's fluff. I don't really know what that means. Four, financial leadership is a central instrument of statecraft, aka you better use our dollars and price your oil in them and buy our treasuries and our stable coins if we say so or else. And five, economic statecraft must serve the American people, whatever that means. Now, all of this sounds really promising, but it creates a problem because from those five principles, it means the US is trying to do three things, rebuild the factories, protect the people of Main Street and keep the dollar strong. Now, according to Luke Groman from FFTT, he says that those things cannot be true at the same time. You can't rebuild American industry and put Main Street first and keep the dollar as strong and overvalued as it is today. You can only pick two of them and you have to sacrifice one. For example, if you wanna rebuild the factories, aka bring back the jobs and wages and protect the people of Main Street, aka keep prices low, then the dollar has to come down a lot because it's the expensive dollar that makes American factories uncompetitive in the first place. So you lose the strong dollar. There's no other way. Now, if you wanna protect Main Street and keep the dollar strong, that means cheap imports keep flooding in and factories never come back. That's literally the deal that America has been running for the last 50 years. So you lose the factories and it becomes impossible to re-industrialize. Now, if you want to rebuild the factories and keep the dollar strong, then the only way American industry can compete against cheap imports is if you wall it off with huge tariffs paid by consumers, which means prices go up on everything. Inflation goes up and the cost of living eats society alive. It's a triangle where you can only pick two. You have to give one up. And according to Luke Groman, he says Scott Besant is way too smart not to know this. And he's already told us more or less which one of those three he's gonna give up. And the one he's most likely gonna give up is gonna be the dollar, except there's a really clever way of doing it, which is to use another asset as an escape valve, something that is a neutral reserve asset, an asset that is not one country's currency and something that can absorb the dollar's price adjustment without blowing up the current economic system. And there's really only one asset on earth with a couple thousand years of experience doing that, which is of course gold, which brings us back to China. Because as it turns out, China knows all of this and China has been building that system since as early as 2009. So here's what happened in 2009. Right after the global financial crisis, Lehman Brothers just blew up, the whole Western financial system got shut down and the Federal Reserve was printing money like crazy to save it. And China is just sitting there holding trillions of dollars of US treasuries, watching all of this thinking, wait, wait, hold on. Our whole national savings account is an IOU from a country that just printed unlimited amounts of money for a problem they just created, devaluing our wallets. So in March of 2009, the governor of China's central bank published an official paper called Reform the International Monetary System. This was China's Jerome Powell, basically saying, quote, the desirable goal of reforming the international monetary system is to create an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies. What this means is the world's savings account should not be stored in one country's funny money, right? We need something neutral, something no one controls. Then the guy in charge of China's central bank was like, maybe we should revive that one idea from the 1940s, from a guy named John Maynard Keynes. And the idea he was referring to was a neutral international currency called the Bancor. The Bancor was based on a basket of about 30 commodities. And its whole job was to keep trade between all the nations of the world perfectly balanced. Long story short, the way that it was supposed to work was if you ran a trade deficit, the system punished you. If you ran a big trade surplus, the system also punished you. Under Keynes' system, the whole game of one country hollowing out another country's factories would never happen because the system would automagically correct it. Now, at the time of this proposal, the United States was like, nah, we're good. Why? Because in 1944, the country that was running the giant trade surplus against the world was the United States. The U.S. was the China of the world in 1944. We sold everything to everybody. And so we didn't want a system that punished surpluses. So Keynes' idea got thrown out and instead the world got the dollar system. How do we know this? We know this because the U.S. trade representative, Jameson Greer, literally said all of this at Davos. Many of Keynes' most creative ideas for how to deal with this problem were left on the cutting room floor at Bretton Woods. He wanted a global currency, things like that. The system that emerged did not have a completely structural mechanism to discourage imbalances. And to be honest, the United States had a big trade surplus at the time. So maybe that had something to do with it. That's what he said. It's kind of ironic that in 2009, China quoted Keynes to the world and said, the dollar system's broken. We need a neutral reserve asset. And nobody listened. And then 17 years later, the United States is now on the losing end of the system that it designed. And it's now the U.S. that's quoting the same economist, making the same argument. The point is, they're telling us the system needs a neutral reserve asset. And by the way, it's not just China asking for this. In 2010, the president of the World Bank, Robert Zoellick, who was the former U.S. Treasury official, wrote an article in the Financial Times saying, the world should consider using gold, quote, as an international reference point for the monetary system. In 2016, a guy named Ken Rogoff, who was the ex-head economist of the IMF, he wrote that emerging markets should convert a big chunk of the trillions of dollars they hold in reserves into gold. And then he wrote, maybe the most important thing you'll learn from this video, he said, gold, quote, despite being in nearly fixed supply, does not have this problem because there is no limit on its price. So tying all of this together, thanks to Luke Groman, Keynes in 1944, China in 2009, the World Bank in 2010, the IMF's former chief economist in 2016, and now Greer and Besant in 2026, the point is, they're all versions of basically the same thing, which is a return to a neutral reserve asset to balance global trade. And there's only one asset that's ever actually done that job. Now the problem is, gold cannot do that job at today's prices because it's just too low. For the math to work, the price has to be much, much higher. The estimate for how much higher gold has to be is $38,000 per ounce, roughly. That's when the biggest trade imbalance, which is with China, would be balanced. Okay, so if this were to be true, and if this theory is partially right, then how would we know? What's the evidence, and what would we start to see? What we'd probably start to see is countries and central banks buying a lot of gold. And it just so happens, that's exactly what we've been seeing. Remember those charts from the beginning of the video. Watch what happens when you look at them again, now that you know what the plan might be. The People's Bank of China buying gold for 20 straight months, including their biggest purchase in almost three years, while the price was crashing 30%. That's a central bank that does not care what the price is because they're not trying to make money. They're accumulating an asset that they think will probably run the world in the future. Also, World Central Banks as a group have been buying roughly 1,000 tons of gold per year for three years straight, which for context, is about double the pace of the decade before. Then there's also countries like Poland, Uzbekistan, Kazakhstan, China. And notice who's selling? Almost nobody. And remember that paper gold ban that China just did? It starts to make a lot more sense because if gold is gonna be the neutral reserve asset, the last thing you would want is a giant Ponzi scheme of paper claims sitting on top of the real metal, suppressing its price, allegedly. China wants its citizens holding the real thing. Coins, bars, ETFs, backed by bullion in a vault somewhere, right? Not somebody's IOUs with leverage and a futures contract on top of it. So it kind of looks like then that China is depaperizing gold before this possible revaluation. And while all of this is happening, by the way, look at the gold exports for the US. This shows something called non-monetary gold exports, which is a line that's going right up, right? The biggest increase in the history of the data. And it started right around the fourth quarter of last year, which happens to be right after US and Chinese officials got together. What this means then is, the United States is literally shipping gold to China right now in record amounts. Luke Grumman predicted this. He said that under this Hamiltonian system of economics, the US will have to export a lot of gold in USD terms to China for some time. It's already happening. Now, hold on. Where does this $38,000 an ounce number come from? Because I know it sounds insane. Here's how they arrived at this number. You take China's last trade surplus, which is around $1.2 trillion or so. Now, China's gold imports last year were 940 tons. And if you divide the surplus by those tons, meaning if China were to settle its trade surplus in gold, the price where the math balances that would be roughly $38,000 per ounce. That's how that number was made. Trade surplus divided by gold. Now, at today's price, gold is just too cheap to settle world trade with. But at $38,000 per ounce, it covers most of it. So let me tie all of this together. Luke Grumman's argument is that there's really two ways that this story ends. The first way is the whole MAGA plan fails. This is where re-industrialization does not happen, the debt keeps on growing, confidence breaks, and the financial system we've had since 1971 comes apart the bad way, which is the way that it came apart between 1922 to 1945, which, as a reminder, included a depression, currency collapses, and a world war before the system replaced the old one, right? Now, I hope that is not the path that we take, but little by little, that seems like where we're going. If that's what happens, gold would skyrocket because gold is what people want when these paper systems break. Now, the other outcome is maybe this plan works. Maybe the US actually re-industrializes and trade gets rebalanced, and the world transitions in a controlled, managed way to a system where gold is that neutral reserve asset that settles trade, like China asked for in 2009, like Scott Besant is talking about right now. That would be the preferred path, right? But either way, both roads lead to the same outcome. The only variable we don't know is how fast or how painful that process is gonna be. So then the question is, well, what does this mean for our portfolios? Obviously, this is not financial advice. I'm a guy on YouTube who used to do card tricks, but the most likely outcome, I think, is that we'll see a capital rotation from financialized America into real-world America, right? Real infrastructure stuff and commodities. Now, in that world, inflation will outperform the dollar. The stock market will outperform inflation and the dollar, and gold will outperform everything else. And so far, that's already started happening. Starting from early 2018, when the first China trade war started, it shows the S&P 500 is up 161% in dollar terms, which sounds amazing, but when measured in gold, it's actually down 15%. Long-term treasury bonds, which are the safest assets in the world, those are down 31% in dollars and down 78% measured in gold. Gold miners are up over 200%. So the dollar prices that are on our screens are kind of an illusion because when measured in real money, money that cannot be inflated, right, the safest assets on earth have actually been the worst place to be. And the best place to have been was the shiny rock that everyone told you not to buy. Now, does this mean then that gold is gonna go to $38,000 an ounce next week or next year? Probably not. That's not gonna happen overnight. There's still a lot of accumulation between nations and central banks. And the crazy part is, though, none of this is actually a secret, right? It's in the Wall Street Journal. It was announced at Davos. It's kind of hiding in plain sight, and people are just not listening to this. I think if people understood this, they would probably be hoarding more gold than they are today, which would obviously be counterproductive for the central planners. Personally, I think this could take more than a decade to play out. These things take a very long time. So if you're watching this video and you have FOMO to go out and buy gold right now, this is not a video to go and get you to buy gold. I think this is gonna take, again, a long time for this to play out, and there will be major corrections along the way, even for gold. Just remember, if this theory is true, there's a difference between being right on the direction and being right on the timing of when to buy it, which is also why I personally don't hold any gold yet, but I'm watching it every day to see if I can get a safer entry point. When and if I do decide to buy it, that video will most likely live in the premium member section where I post my videos earlier, and I post extra thoughts on the economy. If that's valuable to you, the link is down below. Thank you so much for watching. I hope you have a wonderful rest of your day. Smash the like button, subscribe if you haven't already. I'd love to see you back here next time. I'll see you soon. Bye-bye.