Juwai IQI global chief economist Shan Saeed
PETALING JAYA: Gold monetisation is gaining ground in the United States as the administration under president Donald Trump explores ways to fund government operations, settle debts and stabilise the economy.
Although nothing is concrete at this juncture, economists said it could be one of the ways, or a “one-off” fix to strengthen its fiscal system amid challenges.
If this becomes reality, some economists argue it could benefit central banks, including Malaysia, holding the yellow metal in their reserves.
This is because revaluing the metal would enhance the value of reserves held.
Furthermore, the demand for gold from central banks has been on the rise.
Although market observers said gold monetisation will lead to higher gold prices, it would not be to the extent it would create inflationary pressures on Malaysia.
Inflationary pressures will arise in bigger economies where gold holding is higher, they said.
Monetising gold by the United States means using its gold reserves as active financial instruments to inject liquidity, fund operations, settle debt and stabilise the economy.
The signal towards gold monetisation grew stronger when president Trump signed an executive order initiating the creation of a US Sovereign Wealth Fund last month and Treasury Secretary Scott Bessent remarked: “We’re going to monetise the asset side of the US balance sheet.” Based on the latest data by World Gold Council, the US government held about 8,133.5 tonnes of gold as of 2024 and it is the largest among the top 40 countries that officially reported their gold holdings.
Gold holdings also account for 75% of total foreign reserves by the US government, suggesting the US dollar is largely backed by gold.
Economist Shan Saeed told StarBiz the US government is pondering upon monetising gold.
He said the idea is resurfacing as mounting economic challenges and higher gold prices are giving impetus to make strategic moves for the benefit of the US economy.
“Gold is the only asset class with zero counterparty risk in the financial markets.
“The idea is not new as the United States has implemented in the past economic years during President Roosevelt in 1933 and President Nixon in 1971.
“Gold made a phenomenal gain from 1971 to 1980 when prices moved from US$35 per ounce to US$850 per ounce on Jan 20, 1980,” said Shan, who is the global chief economist at Juwai IQI.
He said revaluing the US gold holding would boost the balance sheet and US government fiscal position at the macro level. It could be a smart move.
“With revaluation at the current price level of US$2,900 per ounce, US$100bil can be injected into the treasury account via repurchase agreement.
“It would improve the US treasury balance sheet. Using gold reserves could lessen reliance on treasury bills.
“Collateralising gold to finance new projects and integrating gold into the monetary system will improve liquidity without going into printing money or raising debt,” he added.
He said monetising gold is going to make a paradigm shift in the monetary policy for many central banks.
“It could be a total reset in the monetary system and decision makers will adapt to the new economic culture.
“Economic models need to be revisited and revalued to align with the market forces,” he said.
Shan said gold monetisation is going to benefit central banks, including Malaysia, holding the yellow metal in their reserves.
Revaluing the gold will enhance the value of reserves, he noted.
“As for Malaysia, consumers in the country have an insatiable thirst for gold as it’s a part of their asset class. Wealth generation can happen and consumers holding gold will benefit from the monetisation of gold. Malaysia should benefit from the higher gold prices,” he said.
As at press time, gold was hovering at record high of US$2,992 per ounce, up by almost 12% for the year.
Shan brushed off the notion that higher gold prices from gold monetising would cause higher inflationary pressures in Malaysia.
Shan is projecting gold prices to surge between US$3,000 and US$5,000 per ounce for 2025.
He said: “The Malaysian market is too small to create inflationary impact.
“Inflation will make an impact on bigger economies where gold holding is higher and investors flock to the yellow metal in big numbers.
“It’s the bigger economies where consumers take position in gold. For example, during the 1970s during stagflation (higher inflation, lower growth) gold prices went berserk from US$35 in 1971 to US$850 per ounce in 1980,” he noted.
Meanwhile, professor John Hearn, who is the Centre for Market Education (CME) research fellow and visiting professor at the London Institute of Banking and Finance, said if it is assumed that the gold at Fort Knox in the United States is changed from an idle balance into an active way of servicing debt then the United States is targeting a fiscal solution.
A few scenarios could likely then occur, according to him.
“The market gold price will fall as more is supplied in the market. The US National Debt will become more manageable as long as spending cuts feed through to less total government spending and the US dollar will become stronger in foreign exchange markets.
“Gold monetisation will only have an effect on the Malaysian economy if they hold gold reserves which will fall in value but this could be balanced by a rise in the value of paper dollars held in reserve.
“It should have no effect on inflation in Malaysia as this is solely determined by the quantity of ringgits in circulation determined by the Malaysian central bank.
“If gold monetisation in the United States is a one-off event, then it will have short term benefits that will only benefit the United States long term if other measures are put in place to manage debt and continue to hold it at a sustainable level,” he said.
Hearn said the interesting point is the way the United States sees gold monetisation.
If gold monetisation is seen as a domestic solution to plugging the US fiscal “black hole” then the outcome is mainly national and short term unless the United States targets a sustainable series of future budgets.
In this case gold monetisation would only have a minor impact on the world’s monetary system,” he noted.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said, theoretically, if the US government decides to sell their gold holding and use the proceeds to pay off the government debts, it should be credit positive.
“I suppose it really depends on the manner it is being executed.
“If it is done desperately, it might give a negative impression to the market, leading to a decline in the US dollar and the ringgit could gain from this scenario.” He said the other impact is that it might lead to proliferation of gold as safe haven assets among central banks.
“To a large degree this has been occurring with central banks demand share globally as the percentage of total gold demand has increased from merely 1.8% in 2010 to 21% in 2024.
“The demand from central banks has also been growing at a rate of 20.2% per annum based on 14-year Compound Annual Growth Rate.
“I would see this in a positive light as it will create more demand for gold and that would make the fiat money much more credible as it is backed by precious metal.
“The main issue would be procuring the gold which would mean we need to mine such metal.
“That is something that needs to be considered strategically as it might have an impact on the environment and geopolitics as well as to balance the proliferation of crypto currencies given that it has gained popularity as an asset class,” Mohd Afzanizam noted.
CME Research Associate Emile Phaneuf, however, does not expect that the US dollar would be “backed” by gold anytime soon (as gold monetisation implies), even though the Trump administration has announced its intent to audit Fort Knox to ensure the gold is actually there and even though the White House announced a Strategic Bitcoin Reserve last week.
“My own gauge of the Trump administration’s interest in gold and bitcoin is that it sees both assets as a long-term store of value (or something that it can use as a financial instrument).
“This isn’t the same as making the US dollar redeemable upon demand for either asset outside the context of the sovereign wealth fund,” he said.
He said the White House announcement for the sovereign wealth fund claims the US government is sitting on US$5.7 trillion in assets and a great deal more including indirectly held natural resources.
Even without auditing Fort Knox, he said gold makes up some percentage of the total assets held by the US federal government.
