Kintsugi

“In every particular state of the world, those nations which are strongest tend to prevail over the others; and in certain marked peculiarities the strongest tend to be the best.” - Walter Bagehot

Watching with interest the “barbaric relic” aka gold making new all time high in conjunctions with more pressure coming from the US budget trajectory and rising debt levels, when it came to selecting our title analogy we reminded ourselves of the Japanese art and practice of “Kintsugi”. “Kintsugi” is the art of repairing broken pottery by mending the areas of breakage with either urushi lacquer dusted or mixed with powdered gold, silver or even platinum. “Kintsugi” results in creating a unique piece that does not hide the damage but instead highlights any cracks and imperfections. In similar fashion, one could opine that the significant increase of gold holdings in central banks reserve could be seen as somewhat a “Kintsugi” approach in repairing a broken monetary system. After all the concept of FX reserves was introduced in 1922 at the Genoa Economic and Financial conference, solidifying the role of the US dollar and the British Pound. The first “rug pull” happened on the British pound which was not deemed as good as gold anymore and both France and Germany began switching their sterling holdings for gold between 1924 and 1928. The second “rug pull” happened in February 1965, with French President Charles de Gaulle announcing his intention to exchange its US dollar reserves for gold at the official exchange rate. Both France and Switzerland at that time with their “margin call” managed to “break” the gold peg to the US dollar which occurred in August 1971 and led to the demise of the Bretton Woods system. French president Pompidou also followed with gold repatriation from the United States. What was called at the time the “Nixon shock”, led to the “stagflation” of the 1970s and the instability of floating currencies. The 15th-Century Japanese practice of “Kintsugi, means “to join with gold”. The pottery or monetary system may be broken, but it can be pieced together with more beauty and with the return of “gold” but we ramble again. On a side note, the practice of “Kintsugi” is a reminder to stay optimistic when things fall apart and to celebrate the flaws and missteps of life.

To conclude the above rambling, here is a Halloween riddle for you dear readers as we approach the celebration, maybe John Ronald Reuel Tolkien had “prophetic abilities” when he wrote the trilogy of “The Lord of The Rings” and we are left wondering:

1971 - The Fellowship of the Ring (US Dollar reserves and the rise of the “Petrodollar”).

2001 - The Two Towers (9/11)

2031 - The Return of the King (the return of gold in the monetary system)

Maybe this what Gandalf, the wise “monetary” central banking wizard really meant when he could have said the below slightly amended quote?

“One currency to rule them all, one currency to find them, One currency to bring them all, and in the darkness bind them; In the Land of Mordor where the shadows lie.”

In this conversation we would like to continue to look at the “Money illusion” from an “allocation” perspective given the unresolved US budget trajectory regardless of who gets elected in November, with some ideas we think are of interest in true Gandalf “wizardry” fashion.

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