Interview with Dan Denning of Bonner Private Research

This is the transcript of my interview with Dan last week. The video Parts 1 & 2 are available to free subscribers at https://www.bonnerprivateresearch.com/

Dan Denning: Welcome back to Bonner Private Research. I'm Dan Denning here in Laramie, and in the latest of our Private Briefing series, I'm joined by another guest from London, one I've had the pleasure of just meeting virtually earlier today. I've been reading his work at Macleod Finance on Sustack. If you read about the gold market in London or just read about the gold market at all, then it's a name that'll be familiar, so let me welcome to the show, Alasdair Macleod. Alasdair, how are you?

Alasdair Macleod: I'm very well. Thank you for having me on your show, Dan.

Dan Denning: You're quite welcome. In just a minute I'm going to ask you about several things you’ve written recently about the price action in the gold futures market and really where the pricing power in the paper market lies right now because that's an issue we've frequently discussed and he has some interesting things to say on it.

But I wanted to give you a chance first to tell our listeners and our readers at Bonner Private Research a little bit more about yourself. I understand from your biography that you've been in the City of London and you started as a stockbroker in 1970, and of course more recently you're the head of research at Gold Money, which began in 2001.

What happened in between and how did you come to specialize in sound money and the gold market?

Alasdair Macleod: Well, I started as a stockbroker, as you said in 1970, and of course the '70s were very formative as far as my thinking is concerned because we had the 1971 Nixon shock and that was followed by very steep learning curve about the difference between fiat dollars and gold. And particularly in the UK, we went very heavily socialistic. Tax rates were, would you believe that you could find yourself paying 102% of your income in tax? That was the top rate.

Dan Denning: How is that possible, by the way?

Alasdair Macleod: Well, under socialism, any level of taxation is possible. Let's not go into it.

Dan Denning: Fair.

Alasdair Macleod: But it's a combination of income tax, super tax, and then there was an extra tax on what they called unearned income, in other words, dividends or interest. So if you were making, I can't remember what the levels were, but I mean it would've been nothing like current salaries, you would find yourself in the super tax bracket and if you had any savings in which you were paid a dividend or interest, that attracted an extra tax on top of all that. So that's how it happened. The very high level of socialism really peaked in 1975, and at that time we had to call in the International Monetary Fund to rescue government finances and it was the IMF that insisted on remedial action. Now, I should make clear that the whole function of the IMF was not to rescue an advanced economy, it was to provide finance for emerging economies.

So, you can see that this was a very unusual situation. In fact, it was preceded by a loan from the US government to try and stop a sterling crisis. But obviously, the deal was, "Right, we will lend you however many billion it is, but basically we will put in the IMF and you will have to abide by their conditions."

Now, this in a sense is welcome to politicians because when they get themselves into a situation of promising this, that, and the other thing, they need someone to rescue them from the consequences. And that's basically what the IMF did. So, we went through that. We saw high levels of inflation, up to 25%. And not only that, but the yield on government debt rocketed because of the condition that we put ourselves into.

And this has echoes for today and I'm sure we will come onto that. But continuing with my career path in the securities industry, not only was I a stockbroker, I became an investment manager, this is all at a senior level, and I did a lot of corporate finance work as well. And eventually I left the UK and went to one of the Channel Islands, Guernsey, where I became a director of a bank. So, that really covers my entire experience as it were.

My understanding economics, money, credit and so forth, really sprung out of reading and learning from experience. So it was that that led to me becoming head of research at Gold Money.

I was invited by James Turk who at that stage having been the founder of Gold Money, was the principle motivating force behind Gold Money. And I'm still head of research for Gold Money. But my role there has changed somewhat because I wanted to broaden out my appeal because I can see that there are very substantial dangers to the value of credit and I want to get the message to a wider audience. I want them to understand the difference between money and credit. And while the Gold Money platform is extremely useful, it doesn't really have that broad enough appeal.

So, that's why I set up the Substack channel, to educate people about the difference between money, which in law is gold, silver, and copper, though today we only really talk about gold. And credit, which is everything else: currencies are credit, bank deposits are credit. If you have a share certificate, that's credit because it's an obligation to pay you an income stream or to accumulate an income stream on your behalf as a shareholder. It's an obligation. Everything is a credit obligation. We do not actually use money, in other words, a medium of exchange with no counterparty risk, which is essentially what gold is. That has been removed from the system entirely back in 1971.

So, we live in interesting times because if there is a parallel to any earlier situation, so far, I think we can say quite confidently that the 2020s are shaping up to be very similar to the 1970s. Now, that should alarm us, particularly when you bear in mind that in the UK it ended up with the government issuing treasury debt bearing coupons of 15% and more, and just imagine what that does to US credit.

Dan Denning: Yeah, well that's fantastic. I would say given your professional experience, especially in the '70s and the way you described it with soaring inflation, rising government bond yields and even more debt now. Higher interest rates would be almost unthinkable with the level of sovereign debt that's in the economy now. The discussion about what is money and the role of gold has never been more pertinent. So, let's dive right into it now that we have the right man for the moment.

I want to start with two things you've written recently because you do something that we don't do very often at Bonner Private Research, which is to focus a little bit on the technicals of the futures market and what's driving the price action.

So, on the 5th of July in your piece called Firm Undertone for Gold and Silver, you wrote the following, you said:

Support has been established at the 55-day moving average, but while it would be a mistake to rule out a deeper correction to test the longer term 12-month moving average, the market feels very firm underneath. Undoubtedly, this reflects continuing Chinese demand for both physical and futures contracts in Shanghai, which is now driving prices in Western markets.

So two questions for you on that because I thought that was a really important point you made at the end. First, what is the technical outlook for gold right now? And is the Chinese demand for physical and paper gold the driving force behind the gold price now?

Alasdair Macleod: Well, technical analysis basically provides some sort of framework for people who are looking at a security, in the broadest sense as to where they might expect the security to go purely in terms of supply and demand and how that supply and demand is likely to evolve. That's basically what technical analysis is, and it all goes back to Dow Theory, which is the basis of it all. Things like moving averages are basically a confirmation of Dow Theory, and even Elliott Wave is a confirmation of Dow Theory. It all ties together.

Of course, the problem with technical analysis is that you can find that in a room full of technical analysts, you'll get about as many opinions as there are analysts. So there is a skill, if you like, involved in reading it. On top of that, what I try to do is to put my market experience into the mix, which is a very different thing.

I was weaned on a stock market where there was a floor, and you could go onto the floor at any time, it could be first thing in the morning, it might be after a coffee break across the road from Frogmorton Street, and it could well be after lunch when you've perhaps had a few drinks too many, whatever.

But the thing is that you get a feel for the market. In those days, we had jobbers, and jobbers basically were the people who made the prices. They're the equivalent of the bullion banks dealing in bullion today. And from their  price boards you got a feel for the market, the general feel, and that tells you an awful lot.

On the other hand, you can come in and you can see that there's some red developing, red in our terms are falling prices on the board. You might get a feel that this is turning into something worse. This market's about to fall. And we're probably talking about what, I don't know, 1%, 2%, something like that.

 But that, to a trader, is a major fall. So at that stage, you start shorting the market. And if you're successful, good for you. But many years of doing this gave me that feel, and that's behind my statement: that this gold market feels firm or underwritten by buyers.

This is another thing which I try and bring into my Substack articles when I'm talking about gold and silver as well as just pure technical analysis.

We've got, for example, Elliot Wave people who follow gold, and I'm not going to really question that gold and silver follow an Elliot Wave pattern. I'm not going to go why it works. But some people are very successful with Elliot Wave theory. Bully for them, good for them. But I do feel that it's important to understand what's actually going on between the buyers and sellers in the market.

Now, in this case, we are particularly talking about the paper market. There’s a problem for the shorts.  And the shorts basically are comprised of two categories. You've got the people who should be using this market if you like to cover risk, and those are the producers, the mines for example, mines who know that over the next three months, they're likely to be able to deliver into the refiners, let's say 10 tons of gold.

It would make sense for them to consider hedging the value of that gold because they've got bills to pay, they've got energy costs that are rising. They've got to pay their miners. They're running a business. They're not speculating in gold: they have a balance sheet and they need to ensure the integrity of the profitability of their business. So, hedging is entirely sensible. That's one category.

The other category basically are the bullion bank traders and market makers. They typically take most of the short side, and this is particularly true now because as the gold price rises, the margins of the producers tend to improve, and so there is less pressure on them to go into the market to hedge their forward positions. So, the short side is falling more and more on the bullion bank community. And currently, I haven't got figures in front of me, but what we're looking at is a net short position on COMEX in the order of $55 billion, something like that spread amongst about 29 of them. So, you've about $2 billion mark-to-market loss on average.

They not only make big trading profits on the difference between buying and selling contracts. But also, on their short position in a rising market, they're making losses. Those losses are not necessarily as much as the profits that they're making on trading, but nonetheless that is something that they want to keep a cap on. So, that's the first thing.

The other side of the equation basically is a speculative interest. On COMEX it is principally the managed money category. This is basically hedge funds, and the hedge funds have a very simple approach: they buy gold, sell dollar, or sell gold, buy dollar.

It is a pairs trade as far as they're concerned, and they never, ever, or very rarely anyway, stand for delivery, which of course is a facility which ties the paper contracts value into the physical price of gold at expiry. This is necessary for the market to work. And the hedge funds, if you see their performance, typically tend to get bullish when prices are rising and they tend to get bearish when they are falling. And they are maximum bullish at the top and they're maximum bearish at the bottom.

The point is that the bullion banks know this. This, to them, is wonderful. They watch it unfold. The stupidity of it is because of the leverage on a futures position. You pay a margin of 5% or whatever, which means you're 20 times leveraged. So you need to protect yourself by putting in a stop-loss. In other words, if the price falls by, let us say, half a percent, then you want to get stopped out because you don't want to take any losses greater than that half percent full because half a percent times 20 times is ten per cent.

So you can see that this is information which the swaps have, the swaps being the bullion bank traders. They know where the stops are, and so they know that when there's just a pause in the buying, then they just mark prices down and trigger them.

Now, I'm not saying they necessarily collaborate in this. They may well do. But they all have the same feel. I was talking about the feel of the market. Jobbers' habit, the market makers' habit, as well as me walking into the stock market and after lunch, and thinking, my goodness, this market looks good or it's not going to go any lower. Perhaps I should buy some stock. They have exactly the same understanding. They know this. So they can see, when there is a pause, let us say, in the buying and maybe a tiny bit of profit-taking, then they can exaggerate it, mark prices down quite rapidly, take out those stops, which causes a further fall in the price and whoopee, they’ve made a wonderful trading profit.

That is the way it works. And the point about understanding the market, if you like, not just the technical analysis, but what actually goes on on the floor is, I think, so desperately important. But there is another factor.

You mentioned Chinese demand. It has been a factor for the last 20-odd years. I'd go back beyond that because the People’s Bank of China was appointed under regulations from the Central Communist Party as agent for acquiring and managing the Communist Party's gold and silver back in 1983.

Now, the People’s Bank of China also was responsible for managing the foreign exchange position, and this became very important after the death of Mao. In the mid to late '80s China had very substantial inward investment flows as American and European corporations began to establish factories, manufacturing facilities. And then, really, from the late '80s and into the '90s, you began to have substantial export surpluses as all these factories' output began to be exported.

But if you looked at the money flows going through the People’s Bank of China's hands in terms of foreign exchange and took, say, 10% of that, investing that 10% in bullion would've been at the contemporary prices, which, remember, fell to a low of about $250 per ounce in 2002. It was the equivalent of about 20,000 tons of gold. Now, that, if you like, is my working assumption for what the People’s Bank of China acquired and hid in various government accounts like the People's Liberation Army, the Youth Communist party, and so on. It's all spread around but hidden.

It was at that point, 2002, that the Chinese people were then permitted by law to acquire gold and silver because before then, it was prohibited. So you have to ask yourself why, why was it that, first of all, the People’s Bank was appointed to do this back in 1983, why was it that China invested so much in gold mine output that very rapidly became the largest gold miner in the world?

Why was it that the State hung on to the monopoly of gold refining in China? Why was it that China continued to import substantial amounts of gold in the form of doré, whatever, to feed into its refining operations and so on? Why was it that then, they decided, that their people can now go into the market?

And they started taking delivery out of the Shanghai Gold Exchange vaults. Shanghai Gold Exchange was set up for this particular purpose — to feed gold to the masses previously banned from owning it. The Chinese government started advertising on television “buy gold”. So you can see that it was a deliberate act of policy. And we know that ever since 1983, as far as gold is concerned China is like Hotel California. You can get in but you can't get out, and it's been a one way street.

I have no idea what the State now owns in terms of gold. I would not be surprised if it's north of 30,000 tons given the flows. On top of that, we know that something like 26,000 tons has been delivered out of the Shanghai Gold Exchange vaults to the public. On top of that, we also know that Chinese banks offer gold accounts to their customers, which hold gold in the Shanghai Gold Exchange's vaulting system. So this all adds up to a hell of a lot of gold.

Now, the thing that's changed recently is that Chinese pubic demand for gold has accelerated. And there are several points worth making here. The first is that the People’s Bank of China has been selling dollars to buy gold. Now, I think it's important to appreciate that what we're talking about is the selling of dollars rather than the buying of gold. This is entirely in accordance with the policies agreed by the Shanghai Cooperation Organization and the BRICS membership to get away from using the dollar as a trading medium.

You could say that that's the only reason that the People’s Bank are selling dollars.  But the Peoples Bank is not like other central banks. It does not have a macro Keynesian approach to economics. It realizes that money is only gold and all the rest is credit. And particularly, if you're talking about dollars, you're looking at American credit. The PBOC is taking a view on American credit. So that's the first point I'd like to make. The second point is more serious, and that is that the Chinese household savings rate is reckoned to be 35% of GDP.

Dan Denning: Wow.

Alasdair Macleod: Exactly. Wow. You're right to say, wow. That is the equivalent of $6 trillion in savings increasing every year. Now, where does it go? Well, it used to go into property. What's happening with property?

Well, that's on the no-go list now. We know that. Stock market? Well, the stock market has performed a bit this year so far, but this is after a three-year bear market. And I would posit that what we've seen in terms of rise in the stock market so far, the Shanghai market, is certainly not enough to attract the attention of the Chinese housewife.

So where have all these savings gone? Well, we know the answer. It has actually gone into things called CDs, certificates of deposit, which are deposit accounts at Chinese banks, which have a maturity of up to three years. They pay a higher rate of interest than cash. And that is, basically, where it's gone.

Because property's been cut off, because the stock market isn't attractive, because they're up to their necks in Yuan credit, you can understand why there is increasing interest in gold.

We have this extraordinary situation where until, the last month or two, the West’s gold ETFs have been liquidating. Gold positions have been doing so over the last two or three years. This is behavior typical at the bottom of a gold market after a long bear phase, not at the top with record prices.

But the Chinese have this facility offered by Chinese banks where you can open a gold account. You can have a deposit account in Yuan and a deposit account in gold. All you need is the equivalent of about 500 Yuan in order to open a gold account, which is, roughly, $70.

So you can see that this is a very easy thing for the speculating housewife to put money into gold accounts. And of course, the banks have to back their gold deposit obligations.

They probably run some sort of fractional reserve position. But I would very much doubt if it's on the sort of scale which our banking system operates on, like, 10 times liability to actual physical or more. So the Chinese banks are, basically, in the market to get what bullion they can. On top of that, of course, you have a third element, and that is the smart Chinese punters who see this, and they're not fools.

My acquaintance with the Chinese is that some of them are very smart cookies. And they're punting on the Shanghai Futures Exchange, ‘Shiffy’ as we call it over here.

This demand, as you can see, is a one-way street. The figures behind this are simply enormous, and they are particularly enormous in the context that we've already been cleaned out of physical gold, with only non-Asian mine supply coming in. Bear in mind that China and Russia are the two largest miners in the world. They produce, between them, around 700 tonnes per year, out of a global total of around about 3,000 to 3,500 tonnes.

This doesn't leave a lot of liquidity in the West when China’s households are buying. Not only are they absorbing their own supply, but they're sucking it out from us. So that is really what's going on. And do you know something, Dan?

We're sitting in the West and we are completely unaware of the dangers which are about to hit us, like brown stuff hitting the fan big-time. And I'm just looking at it from a market point of view. I mean, I do have a little bit of correspondence with people in the London market, and they're yet to really wake up to this. They think there's a large speculative element in it because they can see the futures demand on the Shanghai Futures Exchange which they think will be eventually dumped.

But what they don't realize is that this is being driven by a combination of savings, record savings and economic factors. No one in the bullion banking system that I've come across, understands money and credit and the relevant economic theories.

They do not understand that what is going down is the currency they're accounting in, whether it's dollars, euros or sterling, and not so much gold going up. From their point of view, they're booking profits and losses in the currency by dealing in gold. They cannot think, they cannot understand that it’s their currencies being destroyed, not gold going up. This is the denouement that we are all about to face. And it is likely to be triggered by something bad. I mean, we've got so many crises, potential World War III. We've got the debt crisis in America, overleveraged banks, industrial zombies, an unstable EU, an interest rate crisis in Japan. Take your pick

Dan Denning: Let me move on to one of them. You mentioned the ‘brown stuff’ and some geopolitical risks. So this was also something you wrote recently that I wanted to ask you about. Earlier today, I saw a story online that the NATO summit in Washington is taking place and that U.S. Secretary of State, Antony Blinken, said that F-16s from the Netherlands and from Denmark are on their way to Ukraine. They'll be used primarily, he says, for defensive purposes to deter Russian aggression or a Russian invasion of Ukraine. That was today. Last week you mentioned the possibility that elections in the United States in November could be postponed by an escalation of the war in Ukraine, which might even bring NATO into the conflict. So two questions for you. And I know this is a big question, but how likely do you think that is?  And what do you think it would mean for financial assets on the one hand and gold on the other hand?

Alasdair Macleod: Okay. Well, I think the first thing is that the Ukrainian situation, which isn't really in our headlines very much, is very serious. And we are beset with propaganda on this whole thing. I try and cut through the propaganda as much as possible. I'm not necessarily successful.

But the indications that I see are that Russia is winning this war. If I'm right then this creates huge problems for the incumbent American President Joe Biden. And there is a question as to exactly how he's going to deal with losing. Well, probably more accurately, those around him will deal with this situation. And there is the potential for the war to be escalated for American political reasons.

The alternative to Biden is Trump and it looks like Trump is becoming a shoe-in as the next President. Trump believes that Russia does not want to take over the world, which is basically the Biden administration's approach to this, and Trump has got to be stopped.

So Trump might back down and say, "Look, this is a European problem. It's not an American problem. You guys in Europe have not been stepping up to the plate in terms of armaments and all the rest of it, defense spending, you have been relying on us. That's not fair on America. It's your problem, we're going to withdraw."

It probably wouldn't be as dramatic as that. But you can see that it would be a very, very different policy from Biden's. Biden also has the problem that the first action in terms of foreign affairs in his Presidency was his hasty withdrawal from Afghanistan, which was demonstrably a huge failure of American and allied policy.

He will not want to bookend his Presidency with a second failure on Ukraine. So this is what makes me think that from the American side there is a political reason for escalating the situation.

We've also got the problem in the Middle East. So far, I think that the Americans have been sensible in terms of not trying to get involved and escalating it. But obviously there is the historic link between America and Israel and an awful lot of money is involved as well. You can see that the relationship between America and Israel is extremely strong on commercial and on personal levels as well. And the idea that America can walk away from this is extremely hard to swallow. And we understand that a carrier fleet is now being sent to the Eastern Mediterranean, presumably to deal with the threat from Hezbollah.

Now, I don't think Hezbollah will back off from its attacking Israel and I think that Iran won't back off from supplying Hezbollah. With a carrier fleet on its way, it is feeding into a real escalation to a possible nuclear problem.

And I can see that if this does escalate, which is getting hard to hard to see how it won't, it will drive a wedge between Iran and the Gulf Cooperation Council, which is basically the other Arab oil exporters around the region led by Saudi Arabia. They're all buddy buddies now because they've got a shared commercial interest and a desire to see the back of our imperialism. But when Iran is attacked or when Iran's close allies are attacked, that relationship could rapidly become secondary. What this means is that Iran would have absolutely no hesitation to close the straits of Hamas and then what price oil?

$200, $300, I don't know. But you can see that there then confrontation with Hezbollah and Iran becomes really nasty, which could only lead to a further escalation of action against Iran in response.

Now with these situations both in the Ukraine and in the Middle East, it just seems to me that there may be an attempt by the administration to delay. Now, I'm not an expert on the American constitution or anything like that. But I can just imagine in any other country that there would be a mechanism to delay such a presidential election on the basis that this is an emergency. In this country (the United Kingdom) we have on the statute book emergency legislation, which means that all sorts of normal democratic activity can be suspended for a period of time by the government.

We've used it in our colonies. I was born and brought up in the Mau-Mau in Kenya when the emergency started from 1952 and ran through to about 1960. So this is something we're familiar with.

It would be unprecedented in America because I don't think it's ever happened before. So when I mentioned that it could lead to possibly the deferral of the election, I was putting that in basically as a possibility not to be dismissed. But I don't really see how it can happen. I think if they tried to do that, the uproar would be just simply unbelievable in America. But you can understand why I mentioned it as a possibility.

Dan Denning: Yes, I think it was a really good point. That's why I brought it up because we sort of take it for granted and there's this phrase that's constantly repeated about the peaceful transfer of power. That's one of the hallmarks of a democracy is that no matter how much acrimony there is between political parties or whatever the social conditions are, the show must go on.

Of course, right now we're also discussing whether the 25th amendment to the constitution should be invoked to remove the current President from power. And if anything, that probably exacerbates the geopolitical anxiety about, "Well, who's the President? Who's the commander in chief? Who's making the decisions? What happens if the president's removed?"

So we don't really know how they're going to play out, and that's something we'll continue to look at at Bonner Private Research in terms of what the processes are. But I think it's a really important point and I wanted to follow up with another country that you mentioned in your remarks, and that's Saudi Arabia.

So an interesting thing was published in Bloomberg today, which I wasn't able to investigate in depth. But the crux of the report was that when the G7 seven nations discussed in May and June, not only had they already frozen $300 billion in Russian assets in most of the European banks. But they discussed actually selling those assets to finance the government in Ukraine or the war with Russia. So not just seizing and freezing the assets, but selling them and taking the proceeds.

The Bloomberg report that came out today said Saudi Arabia very quietly said, "If you do that, then we'll sell perhaps French bonds or the sovereign bonds of other European governments." So in other words, the Saudis exercised some kind of veto on this decision by western governments to take credit, which I think is what you described it as earlier and turn it into a liquid asset for the Ukrainians.

Does this all get to the point that you were making in the beginning that sovereign bonds, whether it's US government bonds, French bonds, British bonds are just credit and that gold is money. And really gold is the only reliable reserve asset for central banks and governments that has no counterparty risk, has no default risk and can't be seized and sold by another government?

Alasdair Macleod: Well, it's all property. Government bonds are actually debt rather than credit. But every debt is balanced by a credit. It's simple accounting. And being transferable, it has a value and therefore is included in wealth. You can have it in a portfolio. So yes ownership of government bonds is credit. And when you sell them, you get paid in not money but credit because you get paid out of a bank deposit, or it's added to your bank deposits. That again is credit.

And even if you took delivery in dollar notes, that again is credit because there is a counter entry, there's a counterpart entry if you like, on the central bank's balance sheet saying liabilities, currency an issue. So it is all credit.

The point about Saudi Arabia, I think it's worth amplifying on that a little bit. I think what we're talking about is the notional interest earned on the frozen financial assets, bonds, and all the rest of it held in Euro clear. Now-

Dan Denning: I had seen that story too, that they were just going to take the accrued interest and fork it over to the Ukrainians. This other discussion, if I read the article correctly, was an escalation of that, as if they're going to actually sell the assets.

Alasdair Macleod: Well, as I understand it, the Europeans have only agreed that they will deploy the interest. I haven't seen that they are prepared to deploy the principle.

You can look at it either of two ways. This is either that the debt issuers have defaulted on their obligations to Russia, and in this case we're looking at US Treasury debt or French bonds or whatever held in Euroclear. It is effectively a default from those countries refusing to honor those debts. Or alternatively, it is seen as the theft of Russia’s property.

Now it's not just Saudi Arabia. At the various economic forum meetings in St. Petersburg, Putin has made it clear that governments should not have any reserves held in the currencies of the West’s central banks because they can just steal them at will.

This has been proved, and furthermore, I think it was back in 2022 at that meeting, June 2022, Putin told the 80 odd governments who had turned up official for that meeting that you should also move your gold out from under their custody as well. So this is something which Saudi Arabia is well aware of because they have had official representation at these meetings.

It's on the agenda of BRICS, of which Saudi Arabia is now a member. Saudi Arabia has, if you like, broken the longstanding agreement going back to, I think it was 1973, whereby they agreed that they would take payment for oil exclusively in dollars. They’ve recently been accepting Yuan from China. The point is that Saudi Arabia doesn't export any oil worth talking about to America anyway. All its business is pretty much in Asia, Europe and Africa. So they've got no trade interest with America anymore.

But other governments in the region have to tread very carefully because the Americans wave a very big stick. And if you're not careful, you can find that you get yourself into financial difficulties like the Asian crisis back in the late 1990s, or alternatively, as John Bolton himself confirmed, they can arrange for regime change. And I suspect that this is precisely what happened with Pakistan.

So all these guys are treading very, very carefully. But I can see that the Saudis under Mohamed Bin Salman (MBS)  have taken a far stronger anti-American stance. America has no friends in the region. They are infidels, they are not sympathetic to Islam. And so consequently, having this sort of outside imperial power calling the shots in the region is not something that makes the Americans popular.

MBS is the first leader to actually be prepared to stand up and be counted against American influence. After all, he engineered a coup d'état basically by taking out all the CIA placements. That's what that was about.

This is a continuation, I think, of something that has been developing. And there is also the most recent development in this, talking about the Shanghai Cooperation Organization. The Saudis are not members of the SCO, but I suspect that the whole of the BRICS SCO thing will be rolled into one organization in the fullness of time.

The Shanghai Cooperation Organization has now agreed on a mutual defense stance, which basically means that they will defend each other rather like NATO has the commitment that if one of their members is attacked, then the others come and defend it.

Now, I don't think it's this security alliance is as strong as NATO’s yet. But I can see that Russia has been very keen to to counter the Western alliance with an Asian alliance, which isn't just commercial, isn't just financial, but is also military. So we're looking, I think, at a larger picture within which the Saudis have been prepared to make the statement, which you referred to on Bloomberg.

Dan Denning: That's a fantastic answer. We could probably spend another hour talking about Mohammad bin Salman and what's happening there, and maybe we'll come back to you in a couple months and talk to you again about it. I had two final questions for you because I don't want to keep you longer than an hour. One is related to gold and then one is a quick one about politics.

I want to first ask about just a price forecast. I think the inflation adjusted high for gold in 1980 was around $3,431. So it's currently around $2,427. There's a lot of discussion in the gold circles of gold price targets on the basis of physical gold backing US monetary reserves at some percentage, 10, 15, 20, 30%.

So depending on which percentage you use, you get a gold price target of $8,000. Is that the sort of thing you look at when you're talking to people about why they should buy gold? Do you have a price target or is it something that you think matters? And maybe just to add to it, when you talk about Dow Theory is the primary trend for gold up regardless of whether the dollar is backed by it at any percentage?

Alasdair Macleod: The answer is I don't make price forecasts, and I'll tell you why. It's not gold going up, it's the dollar going down.

The only forecast I will make is that the dollar is on a slippery slope, which is leading to its eventual extinction. How long that will take, only time will tell. And we cannot know at this stage, with so many variables in this deteriorating situation, how long that time will be.

But unless the American administration, manages to stabilize the dollar, which basically means cutting its spending hugely, to the point where it's actually got a surplus on its budget and a continuing surplus on its budget, and is, therefore, able to introduce a gold standard, freely exchanging the dollar for gold on demand, then the dollar is dead. It's as simple as that.

Looking at Dow Theory and its technical derivatives, it's what people follow to guess future prices. I would only follow technical analysis on the basis that other people follow it. It gives you some sort of framework within which you can expect things. But the important point, I think really is to understand the economics behind the relationship between money and credit. That is the real key.

And remember that when we had gold standards, it wasn't a question. There were $20.67 to the ounce of gold. That wasn't how it was defined, it was actually defined that a dollar was exchangeable for 25.8 grains of 90% pure gold. That was the way round it was, not the way in which we commonly describe it.

The way we commonly describe it is because it is easier for us to understand it. But, of course, that feeds into the error of thinking that it is the gold price rising because the dollar is the same, the same, the same. It's the gold going up. No, it is not. It is the dollar going down. And the dollar is the king rat of fiat currencies, so where that goes, all the other currencies go as well.

Dan Denning: Great answer. We often, one of the key things that our investment director Tom Dyson brought in, when we started on Substack a couple of years ago, was looking at stock prices in gold terms.

So the Dow/Gold ratio to us was telling us not whether financial assets were generating more earnings or more cashflow, or were just getting more expensive, but where were they relative to gold? So that's right in tune with what we've been doing.

One final question, and it's a bit of a wild card because politics is out of our control, but you had a really interesting, surprising election in France, to American observers, that this weird system where all these French prefectures voted for Marine Le Pen's party, but then in the second round of elections, they actually got a smaller representation than people thought.

So now you've got this lurch to the left in France where these pseudo-communists are talking again about a 90% wealth tax. So France seems to have gone to the Left with a huge amount of debt. And in the UK, same thing. You've got the Labour Party having its largest majority since 1997, but only 34% of the vote.

So one of our old colleagues at The Fleet Street Letter was Nigel Farage. And, of course, his Reform Party polled really well. They, again, were very popular, didn't get as many seats in parliament. But Farage has the ear of Donald Trump, and, of course, the US election is on Guy Fawkes Day this year. Your election was on Independence Day here.

You had mentioned this before, but can you say a little bit about what you think the relationship between Trump and Farage is like? And then maybe how that might give you an insight into what will happen in the US in November?

Alasdair Macleod: Yes, it is fascinating. I think it was about a week before the general election, Nigel made this comment about Russia and Putin, which basically he said that while he doesn't support Putin at all, but Russia has a right to defend its own territory. And I can't remember exactly what he said, but to the effect that we started it. And that is true, that is true.

But, of course, this created uproar. It created uproar in the mainstream media and also in parliamentary circles. Both Keir Starmer and Rishi Sunak were very, very quick to condemn him, as were all the ministers saying he doesn't know what he's talking about. But this is precisely the line that Donald Trump has taken on his public statements.

I put these two things together, and I can see that on the back benches, we have this tiny little party of Reform, which has got five members with a sixth who's taken the whip, who actually wasn't part of reform in Northern Ireland, led by Nigel. And you've got Donald Trump, who is very likely to become the next president.

I've only met Farage once. I knew his father quite well because he was a fellow stockbroker. Nigel looks just like his father, by the way. It's like father, like son. And I found him to be extremely personable.

I have watched the way Nigel operates and he has got substantial political skills. And he will deploy, in my view, his maverick approach from inside the establishment, which the establishment are already dismissing. But you've got to think in these terms. You have bored lobby correspondents in the House of Parliament. And these guys, these hacks will find that the stuff coming out of the Tories and the stuff coming out of the Labour Party is just boring. It's all grey, bureaucratic rubbish, basically. And then there's Nigel, who's quite happy to stand around and have a pint or two with you guys and give them copy.

I think that that is where he's going to make his mark. Partly that, also on social media, also presumably through GB News. He is going to have platforms which do not require him to make keynote speeches in the House of Commons.

Now, this is very important because the way the system works in the House is that if you are the leader of a tiny, tiny party, you get very little speaking time. So he won't have the ability even to stand up and demolish the establishment in the way he did when he was a member of the European Parliament, which he was for many years.

This is a very skilled politician with a line which is very close to the majority of people in this country who are not really aligned, and don't care about politics much. But they see immigration, they understand that's a problem. They want that stopped. I'm not saying that Nigel could stop it, but my God, that gives him a lever against the establishment, that is for sure. And they've seen how we've messed up Brexit.

And it seems to me that the support that Nigel is getting is from cross-party support. The young are supporting him. They like this guy because he's not a grey man, and he says what he thinks and what he thinks is probably what you think as well. So this is a very interesting situation.

The Tories are going through the process of electing a new leader. I think the odds are that that leader will be more to the right, if you like, than Sunak. But the problem they have is that over the years, they have taken on as MPs people who basically are socialists. They've tried to appeal to the middle ground. They have selected middle ground people.

So all they have got really are a bunch of jumped up social workers for MPs. That's really what they are. And the idea that these guys have got an ounce of brains in the political sense, forget it. They just do not understand free markets, they do not understand what socialism does. They're socialists themselves.

This is a Party which really does need reforming, and I think Nigel's calculations have been fascinating on this because he very suddenly decided to take over the leadership of the Reform Party from Tice, and stand for Clacton.

I think when he did that, he finally concluded that the Tories hadn't got a hope in hell. It was getting too close to the date of the election, and their fortunes weren't improving. That was the window for him to get in. He wasn't going to come to a deal with the Tories at all. When that's ruled out, then he stands.

I think that his relationship with Trump, if Trump gets elected, actually makes him probably the most important person on the back benches in the whole of the House of Commons. That is what he has played for, and brilliantly so. How it develops from there, it'll be in the lap of, I think, probably more in the lap of Nigel than the Gods actually. He's no fool.

Dan Denning: That's fascinating. Well, I tell you what, you've given us a lot to think about, so I want to say thank you for making the time to talk to us. And maybe in September or October before the US election, we can talk again because by then, we'll have seen what transpires over the summer in Ukraine, and we'll have a clearer picture of who the Democratic candidate is going to be. Right now, the prediction markets have Trump winning the election at 61%, Biden at 24, Harris at 19, but that's today. 24 hours is a long time in politics.

Alasdair Macleod, just again to remind people, go to his Substack. You'll get more of this, which I think is some of the best top-down analysis of the gold market, with some geopolitics, that you can get from the other side of the Atlantic Ocean. Alasdair, thanks again so much for making the time, and we'll talk to you soon.

Alasdair Macleod: That's my pleasure, Dan.Bonner Private Research