(Kitco News) - U.S. Treasuries will be dumped as global reserves by 2030 as the U.S. dollar gets re-priced from "widely overvalued" levels, triggering 3X returns in gold and 6X returns in Bitcoin, according to Luke Gromen, founder and president of Forest for the Trees (FFTT).
Gromen told Michelle Makori, lead anchor and editor-in-chief at Kitco News, that the economic policies of the past 40 years are intentionally being "trashed" in the U.S., which will have a massive impact on everything from U.S. Treasuries and the dollar to gold and Bitcoin.
Over the last few decades, the U.S. has become good at exporting Treasury bonds and bad at exporting everything else. This is what is changing right now, Gromen notes.
"What Janet Yellen's telling you, what Jake Sullivan [National Security Adviser Jake Sullivan] is telling you, what the Department of Defense is telling you is that it's a national security interest to get out of the Treasury export business and to get into the stuff export business again," Gromen said. "But we can't do that without a much weaker dollar, and the arbiter of that is going to be the price of gold. You're seeing U.S. Treasury Secretary Janet Yellen throw 40 years of economic orthodoxy in the trash."
This shift from Yellen, whose purview is the dollar, is significant. "This is about as big as when [former President Richard] Nixon closed the gold window," Gromen described. In the future, "the 130 trillion bond market is the sucker at the cards table."
Gromen explains that the dollar system as we know it is dying, with the the U.S. treasury bond losing its position as the world's primary reserve asset. This is why the greenback will get re-priced. However, Gromen rules out that the USD will get replaced, stating that it will remain the global reserve currency.
Watch the video above to find out why the U.S. dollar will be re-priced and not replaced as the global reserve currency and according to what.
The new global reserve asset
The U.S. Treasury market has been losing its share as a primary global reserve asset since 2014 because global central banks have sold $400 billion worth of Treasuries on the net and bought $600 billion worth of gold on the net.
"Global central banks stopped buying U. S. Treasury bonds ten years ago on a net basis, and U.S. debt has not stopped growing," Gromen said. "There's a widening gap between the supply of U.S. Treasury bonds and demand from global central banks."
For Gromen's reason why this has been happening, watch the video above.
Gold has been seeing solid gains this year, up 12.5% year-to-date, after hitting multiple new record highs, and it will keep rising towards 2030, Gromen noted.
"Every single thing in macro is telling you it will keep going higher. You're seeing the BRICS go into gold. You're seeing Yellen throw 40 years of economic orthodoxy in the trash. You're seeing the Fed say we won't let Treasury market dysfunction happen by adding liquidity when it is needed," he said.
The alternative to the Treasuries as the global reserve asset is gold. "Treasuries for central banks are no longer risk-free instruments. If you do something the United States government doesn't like, they will take the Treasuries—full stop. They've done it to Russia and others, which has opened eyes," Gromen said.
Gromen added that nobody trusts the Chinese yuan when it comes to finding another reserve option, and even if they did, China doesn't want to open its capital account and issue debt.
"Gold is doing what it's doing because gold is taking the place of Treasury bonds as a primary reserve asset globally at the central bank level. And as that happens, that's a lot of buying against a gold market whose annual production is $240 billion," he explained.
Gold price forecast
The markets are sensing this shift away from Treasuries, increasing gold prices.
"Markets are reflexively beginning to understand that Treasury market dysfunction will not be allowed on a sustained basis, in which case you've got a 130 trillion dollar global bond market increasingly squeezing into the 65 trillion dollar U.S dollar equity market, roughly 14 trillion dollar gold market and the 1.4 trillion dollar Bitcoin market," Gromen said.
This is why there have been spikes in S&P 500, Nasdaq, gold, and Bitcoin charts over the long bond. "All of this has happened in the last 18 to 24 months. Those are the signs of the bond market recognizing that, on a real basis, it is the sucker at the card table. The bubble is in the long-term U.S. Treasury bonds," Gromen noted.
To put gold's upcoming multi-year rally into perspective, Gromen said that gold's move higher has barely begun. "To reflect a reversion to the mean of being the primary reserve asset, it needs to be orders of magnitude higher in price," he said.
To get a more precise outlook, Gromen looks at the market value of U.S. official gold relative to foreign-held treasuries outstanding.
"In 1989, when the USSR fell, that percentage was 20%. When we had a dollar crisis in 1979 and 1980, the percentage was 134%. Fast forward to today, this ratio is at 7%. So gold would need to triple just to get back to the very bottom of the long of this range where we were in 1989, the last time we had a great power competition," he estimated.
This is Gromen's conservative outlook; for his other price scenarios, watch the video above.
What it all means for Bitcoin
Bitcoin also plays a key role in this new reserve asset environment.
"Bitcoin is an energy-linked neutral reserve asset for the people. It is a digital gold-like instrument in that way. More dollar liquidity means a weaker dollar, and that's good for Bitcoin," Gromen said. "It does a lot of things that gold does arguably better than gold. But again, it has a lot more volatility, and it is a much smaller market."
Gromen is not ruling out 6X returns for Bitcoin in the next six years as investors sell bonds and buy assets that hold value. "Something that holds value is U.S. stocks, gold, and Bitcoin."
In this scenario, Bitcoin would outperform gold due to higher volatility. "If gold goes up 3X, I wouldn't be surprised if Bitcoin goes up 6X. They can both win," he said.
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