➡ The Arcadia Economics video discusses how the U.S. Treasury may be secretly using gold to increase its foreign exchange reserves. This involves buying gold freely and using it as collateral to acquire foreign currencies like euros or yen. This strategy, which doesn’t require congressional approval, could be contributing to the recent rise in gold prices. The U.S. retail silver market, however, has seen less investment, despite potential conditions for a shortage.

Is Treasury quietly executing Maran’s Gold-to-FX playbook? We have compelling evidence of a stealthy US-FX reserve accumulation using gold. Well hello there my friends Chris Marcus here with you for Arcadia Economics on Tuesday May 6th recording at 11 12 a.m. While we are watching another stunning rally in the gold market and a lot of interesting things happening beneath the scenes that would account for said rallies that we are seeing and interesting I said another stunning rally I wonder have we gotten to the point yet where you wake up and gold is up 50 or 100 dollars and it’s like okay gold’s up quickly how that has changed so in either case we do have another 80 dollar day that has brought the gold futures

over the 3400 level at 3403 and make some of those past sell-offs feel like a distant memory and here we see that was after reciprocal tariffs diplo 3000 got over 3500 then below did we get yes we did get underneath the 3200 briefly I believe and then now back over 3400 so whether we like it or not I would certainly I’m anticipating continued volatility like this because obviously it’s one thing if the price is just moving but when you factor in the context within which it is moving as we will certainly do in today’s show then I’m not sure there’s a immediate path where we go back to five or ten or twenty bucks is a big day so anyway over 3400 again and we also have silver on the move another six-tenths of a penny away from 90 cents up on the day which has brought us back over the 33 dollar level still a little bit aways over two dollars away from the high earlier this year which you see down here at 3549 so as we have talked about in recent weeks here on the show really I think the big difference between silver and gold right now is that you’ve had a lot of money going into gold whereas

silver where the US is the dominant marketplace that’s right stackers you the US retail in 2023 was about half of the investment silver market because there was so much selling last year and the retail figures were down was a third last year but whereas gold is right now being used in a different capacity even more internationally the silver investment is it’s interesting when I went to Argentina last month even where they’ve had hyperinflation several times in the past few decades buying gold and silver is not a thing so when US retail silver is not buying as much at least from the investment perspective that factors in and which is not to say that I would go sell your silver because in silver’s favor obviously we’re not there yet but

conditions in place that would seemingly put us on track to make a shortage possible at some point and we won’t dig into all of that today although with all that said that’s why you have gold a lot higher where and underlying all of this and what we are about to dig into in a moment in terms of how the government may have been involved in the gold market again underlying all of this is that if US treasury stops being able to be a functional store of international value which you can say we’re either have reached that point or are close to that point certainly on track for that point and if that money flows into gold well that’s what we’ve been seeing interesting to think are we at the beginning of a bigger shift which based on the global debt markets you would almost think that’s at least reasonable to factor in some probability interesting to imagine if we’re in the first inning of this which I won’t sit here today and say inclusively that we are although I’ve been thinking about that a bit more and we will get to exactly why quick look at the dollar index which is down a bit today a third of a percent

back over 99 but still on the lower end of its recent range and not too much happening in the bond yields where been somewhat steady after that wave of selling and then the buying and then selling selling right after the reciprocal tariffs were announced so quick look at the three-month chart you can see here we were yields and once you get to that five level or close to it it’s when you watch the move index which you can find on tradingview essentially the vix of the bond market once you get near that 150 range that seems to be when government officials get concerned so we will keep you posted on that but now into the main action of the show because over the weekend I was reading Luke Groman’s fantastic column

which I would love to show more although it’s behind his paywall and do want to respect that although I think you probably have heard me say before that I’m a big advocate of his work and research and also think he’s just a really cool guy and we’ll be reaching out to see if we can get an interview with him soon although one of the things that he highlighted was a tweet from hedge fund manager named Michael McNair that came out last week and Luke was saying essentially are we seeing a form of gold QE in effect certainly pretty intriguing and again I don’t know that there’s enough I won’t sit here and say this is conclusively what’s happening but also wouldn’t sell the put it zero on that one either so let’s take a look at this

message from Michael McNair and I’m gonna read through the whole thing it’s not terribly long but quite worthwhile so there you got a little snippet of how long and here we go is treasury quietly executing moron’s gold to fx playbook we have compelling evidence of a stealthy us fx reserve accumulation using gold steven moron’s 2023 user’s guide detailed and by the way I will link to that user’s guide this is this one here 41 pages fascinating stuff though and you want to go through that in the description field below and that user’s guide detailed how treasury could convert gold into foreign reserves without congressional approval current market fingerprints suggest moron’s playbook may already be active how his strategy

works by unlimited gold treasury under 31 usc 5116 can acquire bullion freely without new appropriations typically financing via short term t-bills gold is the only asset treasury can later monetize into foreign cash without new appropriations monetize gold later the gold reserve act requires proceeds from gold sales to require to retire treasury debt create a debt liability

first esf the exchange stabilization fund sells dollars forward in other words agreeing to deliver us dollars in six months for euros next they settle using gold just before settlement the treasury sells gold immediately using the dollars raised to retire the forward liability from that swap that they just mentioned satisfying the statutory debt reduction result treasury swapped

the idle bullion for interest bearing fx reserves all within existing law no congressional vote was needed no hit to the headline debt no directional bet on gold that’s the whole playbook buy gold freely and use it as collateral to flip into euros or yen via forward sale of dollars so i understand that could be a little bit complex certain parts although feel free to pause this and read through it slowly if you take them one at a time um they do make sense and uh although i’m not going to get too in detail into those uh right now although one thing i will add before we get to the evidence it’s live is that you still had all that gold and silver that came from london to the u.s i don’t know that the treasury was involved in any of that does seem a

question worth asking to treasury secretary scott gold bug beset as they called him in the office his words not mine so as you’ll see michael lays out his thoughts of evidence it’s live and mentions 2000 plus tons of gold shipped to new york since december the largest inflow ever euro forward rate essentially the one year forward discount versus spot the euro us dollar rate normally tracks spot closely but recently has diverged and he says see the chart below so you can see that is the correlation and here is where it diverged and let’s see if we can zoom in and see the month on that so there you go looks like the divergence right towards the second half of february and leaving us where we are now then he continues this indicates someone who is rate insensitive is supplying dollars or demanding euros in the forward market strongly enough to flatten the curve even as the cash market pushes spot higher that is precisely the footprint you would expect if a large player were selling usd forward in size while simultaneously accumulating euros forward supply leans on basis forward points but the

spot legs of these trades whether at right euro buys or the mirror leg of the gold swap push spot up in other words the correlation break is further circumstantial evidence that the forward leg is being used to fund something structural not a speculative punt number three last week treasury abruptly raised its q2 barring estimate by 390 billion primarily in short dated bills precisely how you’d pre-fund a substantial forward settlement requiring cash delivery now here he lays out some alternative explanations which is one of the things that i look to where not someone who’s trying to jam an opinion down your throat but also saying what else could it be and he mentions admittedly this theory could be explained by other factors

european institutional investors have sold large unhedged the us dollar asset holdings pressuring spot euro us dollar upward massive bullion inflows to the komax were partly driven by terror fears creating a profitable arp and prompting dealers to deliver gold against komax futures i agree there’s some degree to which that could have contributed it’s an unknown but i

don’t think that fully accounts for what we’ve seen i also get the feeling and i can’t prove this but it seems like trump and dissent have more planned or happening behind the scenes than they’re they’re letting out whether it’s actually the explanation michael’s laying out here or not is another question but just my opinion it does feel to me like i hope there’s another plan behind the scene because the initial plan has not gone well so anyway uh the extra bill issuance could merely be catch up financing to get the tga back to 850 billion once the debt ceiling is lifted but if treasury were also buying bullion for forthcoming fx swap the mechanics would look identical on headline borrowing data issue bills now which shows up as higher

net borrowing pay billion suppliers cash outflows eat into the tga sell the gold for dollars at forward settlement also doesn’t fully explain why the euro usd forward curve has flattened steadily across longer maturities nor why the forward versus spot correlation would break so decisively nor the curious alignment with treasury’s sudden borrowing spike and why komax stocks would remain persistently high after the tariff exemption they’ve only bled about one and a half million ounces small which i have mentioned how metal has been leaving my opinion to fund the gold mania that’s broken out in china although while it has been leaving as michael points out here is small relative to it’s at least so far relative to what went in and he

asked why is in the metal racing back to london now the arb is gone and those uh pfp premiums have come back down and lastly also important to note that public ledgers still show flat official fx assets that means either dealer banks are warehousing the euro and yen lag until forward settlement perfectly consistent with moron structure or we’re still testing the plumbing with modest ticket sizes we should know for certain in short order as treasury must publish sovereign wealth fund details by sunday may 4th and thursday’s h4 one release and upcoming tic banking data will confirm whether we’re witnessing the first genuine us fx reserve build-up in decades or if it’s simply an improbable set of coincidences that just happen

to perfectly align with the mechanics of moron’s gold reserve accumulation strategy again we did have scott descent a couple months back say that they were monetizing the assets on the us balance sheet did follow that up by saying that he wasn’t talking about gold and i don’t want i’m not accusing him of being dishonest yet just pointing out that if it turned out that one of those statements was not true and they were doing something anyway would not be the first time that the government has done something like that and anyway just thought that this was quite interesting i’m going to leave the link to his tweet in the michael mcnair a lot of it again if you read through some of his other comments also quite intriguing he’s not

someone who just hopped out of college yesterday and thought there’s inflation on the way and gold is going to go up clearly an accomplished guy so just wanted to point that out again as he phrased it and as i’ll phrase it once more do we know that this is happening no although just very fascinating to see some of the signs of what could be happening and we will continue to explore those possibilities and i’d like to think that i phrased it in an appropriate way here today again here is the paper by steven moron which i will not read i won’t read through this one today that would take a little while although here you can see some of the things that he covers and if you found michael’s comment interesting and especially if you like

digging deeply into not just what’s being speculated i mean here steven moron currently serving as chair of the council of economic advisors to the trump administration so in that position and wrote out what he would advocate so i will let you connect the dots on that as you will and by all means leave a comment below if you have any thoughts on that one and i will continue to investigate that can keep in mind that this is going to continue to unfold at a time when now everyone’s favorite ceo jamie diamond of jp morgan told investors last week that the best case outcome for the u.s is now a recession and he’s saying that especially in reference to the trade war so divergent from what jerome pal has continued to say about how

the economy is strong and they’re going to bring inflation down by lowering interest rates and we’ll see how that goes paul tutor jones says stock market will hit new lows even if trump cuts tariffs to 50 and now in addition to the fed’s own projections in their dot plot as well as the futures market pricing even the cnbc survey thinks that jerome is going to be cutting later this year and i would imagine they will be right so anyway just wanted to pass that along today and before we wrap up also would like to thank first majestic silver who was our kind sponsor for today’s show and first majestic following their deal with gato silver in the first quarter produced 7.7 million ounces of silver equivalent and here you can see the breakdown that

came to 3.7 million ounces of silver 36 469 ounces of gold 12 and a half million pounds of zinc seven and a half million pounds of lead and first majestic will be releasing their earnings tomorrow may 7th after the close so will be interesting to get more information from them especially now as they’ve incorporated gatos into their operation and certainly with the current gold and silver pricing helping out quite a bit so find out more at first majestic.com and again their earnings will be out after the close tomorrow so gonna wrap up for now thanks as always for tuning in and i’ll see you again soon you
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