Gold Becoming Leading Reserve Asset for Central Banks, While Bitcoin Should Outperform Gold This Decade, Says Macro Research Analyst

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As a crypto investor with a background in macroeconomics and a keen interest in the shifting dynamics of global reserve assets, I find Luke Gromen’s insights incredibly valuable. With over 25 years of experience in equity research, sales, and macro analysis, Gromen has a deep understanding of economic trends and the motivations behind central banks’ decisions.

In a recent conversation with Michelle Makori, the Lead Anchor and Editor-in-Chief at Kitco News, macro research analyst Luke Gromen shared his perspectives on the evolving landscape of reserve assets, its consequences for U.S. treasuries, and the prospective function of gold and Bitcoin in the future.

Gromen serves as the founder and president of Forest for the Trees (FFTT), a distinguished macroeconomic research firm he initiated in early 2014. With over a quarter-century of expertise in equity research, equity research sales, and macro/thematic analysis, Gromen leads FFTT in compiling an extensive range of macroeconomic, thematic, and sector trends to pinpoint emerging economic bottlenecks for its discerning clientele – encompassing both institutional investors and astute individual investors.

Previously, Gromen worked at Cleveland Research Company (CRC) from 2006 to 2014. During his tenure, he held the position of founding partner and was responsible for sales as well as editing CRC’s renowned weekly research report, titled “Straight from the Source.” Prior to joining CRC, Gromen spent a decade at Midwest Research. There, he functioned as a partner, focusing on equity research and sales from 1996 to 2006. He also initiated and oversaw the production of “Heard in the Midwest,” a popular weekly thematic summary.

During an interview with Kitco News, Gromen noted a substantial change in the international financial scene. He explained that U.S. treasuries are no longer the go-to reserve assets for central banks due to several reasons.

As an analyst, I’d interpret Gromen’s perspective this way: Mechanically speaking, when the US dollar grows too powerful, central banks sell U.S. treasuries to acquire dollars in response. However, geopolitical risks add another layer of complexity. The actions taken by the U.S. government, like seizing Russia’s reserves, have created unease among other nations, making U.S. treasuries seem less enticing as a safe haven investment.

As a crypto investor keeping an eye on market trends, I’ve observed that economic circumstances are evolving, with countries increasingly favoring reserve assets capable of preserving or enhancing their value versus commodities such as oil and copper. In my perspective, gold presents a more suitable option than treasuries due to its long-standing record of stability.

Beginning in 2014, central banks around the world have offloaded approximately $400 billion worth of U.S. treasury bonds and simultaneously acquired about $600 billion in gold. According to Gromen’s analysis, this shift signifies a significant change in central bank strategy. He posits that gold’s inherent stability and security make it an increasingly attractive reserve asset. Notably, central banks have been purchasing gold at unprecedented rates: the first quarter of 2023 saw a demand for roughly 290 tons. Gromen anticipates that gold will soon surpass U.S. treasuries as the preferred choice among central bank reserves.

Gromen contended that the US dollar is excessively strong and that bringing back manufacturing industries in America would require a weaker currency. He underscored the fact that the US cannot maintain elevated real interest rates without instigating a debt crisis given its substantial debt-to-GDP ratio and significant deficits. Gromen proposed that the Federal Reserve might have to curb interest rate hikes, which could harm the dollar’s value.

According to Gromen’s perspective by 2030, we can expect gold prices to experience significant growth. Using historical trends as a reference, gold’s price could rise between three and six times its current level, potentially reaching heights of $42,000 to $44,000 per ounce. This increase may occur if a financial crisis similar to the one in 1980 were to unfold. It is essential to note that gold’s current value does not accurately represent its potential worth as a primary reserve asset.

Gromen highlighted the gold-oil ratio as a significant marker of U.S. treasury health as a reserve asset. In his view, an elevated gold-oil ratio implies intensified competition between gold and treasuries, potentially signaling a weakening stance for U.S. treasuries.

According to Gromen’s perspective, Bitcoin functions similarly to digital gold, gaining value due to expanding dollar liquidity. He considers it an energy-linked, unbiased savings tool for individuals, boasting the potential for substantial price growth. Nevertheless, he points out that Bitcoin’s market capitalization is insufficient for central banks to consider adopting it as a reserve asset at present.

As a crypto investor looking towards the future, I believe that by 2030, significant transformations are on the horizon for the global financial system. According to Gromen’s predictions, gold and possibly Bitcoin will assume more prominent positions. Among these two valuable assets, I anticipate Bitcoin surpassing gold due to its inherent volatility and smaller market size. These characteristics make Bitcoin a more reactive vessel for changes in demand for value-holding assets.

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2024-07-01 13:36