Impact geopolitical tensions on gold and Bitcoin markets

Mark Twain said “History doesn’t repeat itself, but it often rhymes.” It is an important concept to think about with the current state of the world amid ramping geopolitical tensions and deteriorating economic conditions.  There is the potential for the global economy to sink into a deep recession/depression while chatter about the potential for World War 3 is also on the rise.   

With major conflicts now including Ukraine v. Russia, the growing threat of Russia v. NATO, Israel v. Palestine, Israel and the U.S. v. Iran, and China threatening Taiwan, among others, while we cannot say that WWIII is underway, it’s not a stretch to say that we are a world at war.  

Naturally, the circumstances the world finds itself in are causing consternation for investors, who desperately want to maintain their wealth despite the mounting headwinds they face in doing so, leading many to question if gold, and to a less significant extent, Bitcoin, could potentially offer protection. 

Europe routinely cancels its paper currency to prevent people from hoarding cash. America has never done that, which is why the dollar has been the reserve currency someone in China can hold dollars but not euros. Also, the US is a consumer-based economy, so this is why the dollar has been the reserve currency, for Europe needs to see to Americans, as do Asians.

As for what the potential for WW3 means for investors, it underscores the need to invest in tangible assets. Some have called it the Everything Bubble, for they do not understand that this is a divestiture from public assets to private.

This has been precious metals, real estate, and shares with tangible assets. Precious metals in the form of coins will most likely become the currency of the underground economy. Even if you look at the German Hyperinflation, the replacement currency in 1925 was backed by real estate. Tangible assets survive the collapse of currencies.

Governments will seek to impose capital control to prevent capital fleeing. This will most likely dominate Europe.

The lesson we must learn historically from wars is that governments will impose capital controls, and this may be when they attempt to switch cancelling paper dollars and forcing everyone into CBDCs.  If this were to occur, physical gold and silver will be the only form of money to survive under these conditions.  

Experts suggested it would be best that precious metals are in the form of recognizable coins that the uneducated will accept, such as a $20 gold piece or silver coins dated pre-1965.

The US threatened China with the same sanctions if they helped Russia. Countries realized that the American Neocons have used the dollar as a weapon, and that is what divided the world economy.

As for going back to a gold standard, the main problem with doing so is that people have become so accustomed to valuing things in fixed fiat terms that they don’t know another way to approach determining the true value of things. 

A gold standard has always failed when it has been fixed to a specific value. Bretton Woods collapsed because they fixed gold at $35 per ounce, but they did not limit the amount of dollars created. Even outsiders could figure out such a system would collapse.”

The only gold standard that has ever survived is when its value freely floated. “The Byzantine Empire was based purely on gold that floated in value, it too collapsed due to wars and spending that was unrestrained.

Asked whether the powers that be could use an escalation in war to overshadow a potential economic collapse, an expert said, “Wars have been the driving force behind all monetary crises.” 

USD is too big to fail

Global tensions always have an impact, the key is to monitor to see if the tensions will get worse, that’s when investors should worry. A major global conflict would likely disrupt supply chains and cause immediate and severe shocks in the financial market.

Unless there is concern about the stability of the U.S. dollar or severe inflation, investors would not immediately flock to gold, but more likely so than Bitcoin – which is still extremely volatile. Those countries who would embrace alternative currencies likely already have an unstable fiat currency, so their adaption may not cause further adaption.

Fiat currencies are generally here to stay. As long as the U.S. government is backing the dollar, it will remain the preeminent currency. The world is too interconnected and dependent on the US Dollar now.