Interview: Henry Smyth on the Return of Gold as Global Reserve Asset

May 8, 2025 | In this issue of The Institutional Risk Analyst, we feature a discussion with Henry Smyth, Director and Investment Manager, The Keep Fund Ltd. a Bahamas SMART Fund investing in the precious metals complex. Smyth has decades of experience managing precious metals and before that as a banker at Coutts & Co and Manufacturers Hanover Trust specializing in Latin American markets. He is a graduate of New College. 

The IRA: Henry, thank you for making the time. Gold has outperformed the S&P 500 by a considerable margin over the past year, up 44% LTM vs just 10% for the broad equity market indicator. Is the run in gold and other precious metals over or is the upsurge just beginning?

Smyth: Just beginning. I started my career at the Manufacturers Hanover focused on Latin America in the depths of the LDC debt crisis. I moved to the US subsidiary of NatWest and eventually to Coutts & Co, where I helped create and manage several funds focused on Brazil and Mexico, taking money market and currency positions for our private banking clients. In 2000, I decided to go out on my own with the same strategy, but around 2003 I changed the focus of the funds to long precious metals. My partners is Brazil thought that I was crazy as did my former clients. I had been adding gold to my personal portfolio for some time. After the disastrous gold sales under UK Chancellor Gordon Brown between 1999 and 2001, I believed gold had found its bottom after a generational bear market. To me that meant a generational bull market was underway and I wanted in.

The IRA: And that was about the time that we met as neighbors living on Red Hill, in Croton-on-Hudson New York. We had also been involved in the Mexican market and the political opening that led to the election of Vicente Fox Quesada as President after decades of single-party rule. In 2003, the price of gold averaged $363.83 per ounce or one tenth of the price today. The year-end closing price for gold was $417.25 and nobody really cared.

Smyth: Correct. I went to Zurich to introduce the new gold strategy in 2005 and met with a number of clients that had worked with me at Coutts. Virtually none of the managers expressed interest. I asked what the allocations of precious metals were in client portfolios and the reply was close to zero. My Brazilian partner said “See Henry, there is zero interest in gold” but that was the wrong conclusion. If allocations to gold in Switzerland in 2005 were zero, then the price had nowhere to go but up.

The IRA: Your view was proven right. As the LT chart from Yahoo Finance below illustrates, gold is up over 1000% since 2005 while the S&P 500 is up just under 300% over the same period. We caught some of the move in gold earlier this year, but clearly the positive run starts more than a decade ago.

Smyth: We have been running the gold fund since that time or almost two decades. We ran it up through the first major gold uptrend which peaked around 2011.

The IRA: August of 2011, to be precise. What happened after 2011?

Smyth:  The market sold off from the peak in 2011, but then we rode up the next cycle starting from 2015 which continues today. These two uptrend cycles are very different. In the first cycle, you had a couple of things happen that were particularly significant. First, exchange traded funds (ETFs) were becoming more prominent and this sucked in the bulk of the retail and institutional demand for gold.

The IRA: The first exchange-traded gold fund, SPDR Gold Trust (GLD), was launched in November 2004 and traded on the NYSE. The first gold-backed ETF, ETF Securities Physical Gold, was launched in March 2003 on the Australian Stock Exchange. But the price action was still muted. What was the second factor that helped begin the next bull cycle in gold?

Smyth: The second and far more significant factor was the initiation in 2002 of the Shanghai Gold Exchange (SGE). Nobody at the time took the SGE seriously. Nobody paid attention to it. Nobody asked what strategic significance this might have, both for gold and the global monetary system. Now it is completely clear what happened.

The IRA: At the time, Jiang Zemin was the President of the People's Republic of China and the economy was expanding rapidly. The SGE was established by People's Bank of China (“PBOC”) upon approval by State Council and supervised by PBOC. A decade later, in 2014 the Shanghai International Gold Exchange (“SGEI”) was registered in Shanghai Pilot Free Trade Zone and fully owned by SGE. A decade ago, Xi Jinping had only just risen to power, ending the latest period of liberalization in China.

Smyth: What we were seeing in Shanghai in 2002 was the return of gold to the international monetary system. You remember the Jamaica Accord in 1976?

The IRA: Let’s see, the Jamaica Accords were a set of ministerial agreements that ratified the end of the Bretton Woods monetary system. Ending Bretton Woods meant that the US could expand the US money supply without limit. President Franklin Delano Roosevelt tried to kill gold during the Great Depression. The end of Bretton Woods, following President Richard Nixon’s closure of the gold window at the Treasury in 1971, ultimately enabled the return of gold as a competitor to the dollar.

Smyth: Precisely. The IMF Jamaica Accords said members could have any foreign exchange arrangement they wanted – except gold. And that rule is still in force. It was clear to people who understood the global monetary system the long-term significance of the Jamaica Accords that the US, as the center of the Petro dollar system, did not want any competition from gold. But fast forward two decades it was equally clear that the creation of the Shanghai Gold Exchange represented a break from that understanding.

The IRA: The real point of Bretton Woods was that it pretended to be a gold-based standard even though the real intention of the US was to exclude gold from the monetary map forever. But as we note in "Inflated," putting debt atop a fiat currency will end in tears. Countries could settle their trade accounts with the US in gold until 1971, but few did so because their gold was already sitting in the vault at the Federal Reserve Bank of New York. And nobody was thinking about a threat from China in the 1970s.

Smyth: Exactly. So this brings us back to the second major gold cycle since 1971, which begins in 2015. There are several differences between the first cycle and the second which make for a potentially disruptive dynamic. Central banks have changed their posture from net sellers of gold to net buyers. Central banks are not price sensitive, they are sensitive to volume and tonnage. While the retail markets are still focused on price, the central banks are focused on tonnage. These are two different mindsets and it is supremely important to understanding the gold market today.

The IRA: As Jim Rickards says at the end of “Inflated: Money, Debt and the American Dream,” the US Treasury should be buying gold for paper. This is a pretty straight-forward proposition, but the credulous fools that we find today operating in American political circles have no idea that anything is changing.

Smyth: Effective July 1 of 2025, gold will become a Tier 1 asset under the Bank for International Settlements Basel III rules, so long as it is physical gold in the vault. This means that all global central banks will be buying gold tonnage on a set schedule regardless of price. Central banks have a tonnage target and they will hit it.

The IRA: Regardless of what it does to price. I like this trade more and more. Tell us what drove the increased interest in gold 15 years ago?  Was it the deteriorating fiscal situation in the US or are there other factors as well?

Smyth: That is a really good question and there is more than one answer. Part of the answer is growing unease at what is going on in the US in terms of fiscal policy and misgovernance more generally. The second factor is the realization in many foreign capitals that the increased weaponization of the dollar was making other nations more vulnerable. This is not just about sanctions but also the outright theft of dollar reserves as in the case of Russia, Venezuela and Iran. There is a confluence of factors contributing to the return of gold as an alternative to the dollar, but perhaps more important is the fact that price discovery has moved from London and New York to Shanghai.

The IRA: What are the implications of the shift in the center of gravity in terms of gold trading from London to Shanghai?

Smyth: The obvious change is the shift from 400 oz London "Good Delivery" bar traditionally used by bullion and central banks to the 99.99 fine gold 1 kilo bars that are used in Asia. Since the beginning of the Trump Administration, US gold imports have skyrocketed. Why is this happening? First, gold trading on the futures markets in the US has historically been designed for cash settlement but now the demand for good delivery is soaring.

The IRA: Not exactly a vote of confidence in President Trump or his “Make America Great Again” program. FDR had to seize gold from US citizens to avoid the collapse of this New Deal Administration in 1933. A spendthrift American government of the future may be forced to seize private gold again.

Smyth: You have to go back to the post World War I period to see this much gold moving around the world, this far and this fast. That period was marked by trade disputes, currency devaluations, inflation, and ultimately global war. We believe that there is a tectonic shift underway from the single currency, unipolar hegemonic system with the US at the center to a more decentralized system. The vast movement of gold that is visible today suggests a significant change is underway and there is no roadmap for this change. The change is organic and it is making investors less interested in speculating on gold prices and more interested in owning physical gold. While banks leave their traditional physical custody services, you are seeing a proliferation of dedicated physical precious metals storage facilities, both in the US and elsewhere.

The IRA: How do you view the US as a market for physical gold?

Smyth: The return of gold as a monetary asset within the US is well underway. This trend is moving from the bottom. There are eleven states that recognize gold and silver as U.S. currency, making them legal tender within those states which in turn makes gold contracts legally enforceable in those states. The writing is clearly on the wall. As Americans look for a way to manage market, inflation and counterparty risk,  gold and also silver will play an increasing role in the US economy in a way it has not in over four generations.

The IRA: So when the Treasury revalues the official gold stocks, which are still held at the arbitrary price set by FDR of $42 per ounce, the public rush back to gold may become a stampede? Since US currency issuance was still tied to gold in 1933, FDR actually revalued the gold to allow the Treasury to print more paper currency. When FDR revealed his plans to “profit” through the revaluation of official gold stocks, Carter Glass, the widely respected senator and former Treasury secretary under Woodrow Wilson, ridiculed the notion with open contempt. FDR believed that by merely changing the dollar price of gold upward, the government would gain a “profit” of some $2 billion measured in fiat paper dollars. Senator Glass immediately saw through the fiction.  So given the state of things in Washington, we should assume you see the price of gold moving higher?

Smyth: Decades of official efforts to repress the price and utility of gold are ending and we are now coming full circle. What does the world look like under a modern gold standard that is not controlled by the United States? We could see tokenized gold. The BRIC nations clearly want a trade settlement system that is independent of the dollar. Consider the irony that the Communist Party of China has allowed their citizens to own gold and encouraged Chinese banks to open accounts for their citizens as small as one gram. I expect the US Treasury will eventually make a virtue of necessity and revalue its gold reserves, pending an long overdue audit of course.

The IRA: That sounds like the price of gold is moving higher. Thanks Henry.

Comments on "Inflated: Money, Debt and the American Dream."

https://dailyreckoning.com/the-first-crypto-currency-the-dollar/

https://prinsights.substack.com/p/exclusive-with-chris-whalen-inflated 

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