Gold Wars and Ghost Factories: How Currency Battles and Populist Aftershocks Are Reshaping Our World. #253
And what AI means for what we know.
Grüezi!
China’s gold rush meets America’s “Reverse Smaug” strategy as the world’s superpowers wage a subtle but significant currency war that could redefine global finance.
Reform UK’s stunning electoral breakthrough traces the exact geography of Britain’s industrial decline, revealing how seven decades of prioritising finance over factories is fuelling populism.
From Middle Eastern power struggles to AI’s struggle with human emotions, this week’s newsletter explores how both ancient patterns and modern disruptions are shaping our future.
Gold War Diplomacy
The world’s bullion build-up
Like a bad Spandau Ballet tribute band – Gold is back.
China has increased gold reserves for 6 consecutive months since November 2024
January saw the highest Swiss gold exports to the US in 13 years
Russian gold reserves now represent 35% of their total reserves by value
As China steadily stacks bars of bullion month after month, a curious countermovement has emerged in the West: massive amounts of gold have also flowed into American vaults.
Is this a happy coincidence, or two powers executing opposing strategies in the same metallic match? Beijing’s moves appear defensive, Washington’s offensive – yet both revolve around the same ancient monetary metal in a modern currency war.
Coupled with subtle shifts in US Treasury operations, there are signs that Washington’s metal mania is drawing from CEA Chairman Stephen Miran’s controversial “gold-to-FX playbook” for dollar devaluation—a “Reverse Smaug.”
Miran’s Playbook: From Theory to Operation
Since February, there’s been an unprecedented accumulation of physical gold in New York, with COMEX inventories more than doubling to 43 million ounces (≈1,340 tonnes). At the same time, London’s vaults have been emptied, with the Bank of England now maintaining a four-week wait-list to lease metal. January saw Swiss gold exports to the US hit their highest level in 13 years.
These flows align perfectly with phase one of Miran’s theoretical strategy: stack up substantial US gold reserves before using them to build foreign exchange holdings and lower the dollar.
The Exchange Stabilisation Fund (ESF) – the US Treasury’s discretionary intervention vehicle – has begun showing early signs of activity, with foreign currency assets rising from $17.76 billion to $18.25 billion between February and March after two years of remaining flat. Whilst modest, this shift in direction matches phase one of Miran’s gradual gold-to-FX conversion plan.
Signs it’s happening? The three-month EUR-USD cross-currency basis swung dramatically from +12.5 to –53.8 basis points in early April – the biggest weekly flip since 2020. This technical indicator reveals precisely the market squeeze that would emerge if a large player were executing the kind of spot/forward currency swaps Miran detailed in his paper.
The Treasury’s unexpected April announcement raising its Q2 borrowing estimate by $391 billion, predominantly in short-dated bills, is the final piece of the puzzle. Miran’s circuit requires Treasury to issue extra bills to retire debt against any “legal” gold sales while the ESF borrows dollars forward – a pattern now visibly emerging.
China’s Moves
Beijing seems to have calibrated its response with characteristic patience and foresight. Since the US election result in November 2024, China has bolstered its official gold reserves for six consecutive months.
The additions aren’t dramatic – a microwave-oven-sized amount, roughly 0.09-0.16 million troy ounces monthly, pushing its holdings to approximately 2,295 tonnes – but the timing and consistency speak volumes.
China has continued its purchases despite gold prices rising over $3,000 per ounce, suggesting motives beyond mere investment. Officials frame it as “accelerating the stockpiling of strategic commodities” – bureaucratic language for a pivot to gold as a dollar hedge.
Chinese households are following the central bank’s lead, with retail gold demand reaching its second-highest level on record in Q1 2025. ETF inflows exceeded 23 tonnes – unprecedented figures that look very much like a nation collectively preparing for currency realignment.
The Global Gold Coalition
China stands in increasingly crowded company, joined by numerous nations accelerating gold acquisition:
Russia has transformed its reserves, with gold now representing 35% by value – a necessity born of Western sanctions freezing its dollar assets
Poland added a whopping 29 tonnes in February alone, planning to reach 50% reserve share in gold
Saudi Arabia has increased holdings by roughly 30% since 2021, now at 323 tonnes
India steadily accumulated to 876 tonnes, doubling its position over a decade
This collective movement pushed central bank gold purchases to 1,136 tonnes in 2023 – the second-highest annual total in history. These nations appear to be moving in concert, constructing a gold-backed financial architecture that could survive significant dollar turbulence.
The Currency Gold War Logic
The strategic calculus for both Washington and Beijing is becoming clear. For Miran and the US Treasury, using gold to weaken the dollar addresses two structural challenges: reducing debilitating trade deficits caused by dollar overvaluation whilst avoiding dangerous foreign capital flight from Treasury markets.
By using the Exchange Stabilisation Fund’s gold authorities rather than direct intervention, Treasury can circumvent Congressional oversight while maintaining the essential global confidence in Treasury securities.
The mechanism ingeniously resolves the Triffin Dilemma – the structural contradiction of maintaining reserve currency status while achieving trade competitiveness.
For China, accelerating gold purchases serves as the perfect insurance policy against this very strategy. Beijing has recognised the early signs of Miran’s playbook implementation and has adjusted accordingly, ensuring it won’t be caught flat-footed when the dollar weakens.
By accumulating gold now, China positions itself to benefit doubly – first from rising gold prices as the dollar falls, and second from the geopolitical advantage of a gold-backed yuan in a post-dollar settlement world.
Smaller nations following China’s lead gain similar protection against dollar debasement whilst simultaneously aligning with the emerging multipolar financial order. This explains the coordinated nature of global central bank gold purchases – not a coincidence but a shared recognition of changing monetary realities.
Financial War by Other Means
The implications of this emergent gold-centric currency war will shape financial markets for years to come:
Asset Revaluations: Gold’s dramatic rise to $3,500 per ounce may not be speculative exuberance but rather a rational market pricing of its renewed monetary role. Expect continued structural appreciation as both Chinese demand and American gold mobilisation strengthen.
Treasury Market Recalibration: The recent sell-off in US Treasuries reflects fear of a stealth dollar devaluation strategy. This process will likely continue in controlled phases, with Treasury using bill issuance to manage the pace of adjustment.
Global Portfolio Shifts: Institutional investors will probably look at material increases in gold allocation (5-10%) as monetary metal regains its historical role as currency hedge. Dollar-pegged emerging markets face particular vulnerability and should accelerate reserve diversification.
Key Monitoring Indicators: Watch upcoming ESF statements in May/June for continued foreign currency asset growth. Additional Swiss gold flows to the US and persistent EUR-USD basis anomalies will confirm the operation’s expansion. Any executive order changing the statutory $42.22/oz gold valuation would signal a dramatic acceleration.
Neither side acknowledges the game publicly, preserving plausible deniability while redirecting global financial flows. Washington steadily builds gold-backed foreign exchange reserves while Beijing and partners accumulate physical bullion as an insurance policy against a managed dollar descent.
Miran’s gold-to-FX strategy and China’s bullion blitz represent opposite sides of the same historical inflection point – a monetary system in transition from unipolar to multipolar, and from paper to metal.
The Perishable Peace
Trump Triangulates a New Middle Eastern Order
Iran nuclear deal expires October 2025, creating urgent timeline for action
Netanyahu diverts attention from Gaza hostage crisis to Iranian threat
Trump’s upcoming Gulf tour could determine regional trajectory
Syria’s power vacuum after Assad’s fall redefines regional influence
The New Regional Drama
The Middle East today resembles a Greek tragedy—a stage where hubris, nemesis and catharsis play out as four regional powers vie for influence, with America as deus ex machina.
December’s political earthquake in Syria transformed the region. With Assad’s regime toppled after 13 years of civil war, Turkey now stands behind Ahmed al-Shara’s government, in direct competition with Israel as both establish buffer zones while nominally “respecting” Syria’s sovereignty.
As October’s Iran deal expiration date approaches, Trump has flipflopped on Iran’s nuclear programme moving from diplomatic containment to “complete dismantlement” – echoing Netanyahu’s position.
Against this backdrop, we face three potential scenarios: a strategic stalemate with periodic escalations; the possibility of limited military confrontation; or the slim chance of diplomatic resolution.
The Players and The Pieces
America maintains unrivalled military dominance and economic leverage but remains haunted by failed interventions. US Defence Secretary Hegseth’s deployment of B-2 bombers to Diego Garcia signals renewed resolve, or at least a raising of the stakes.
Israel combines technological prowess with strategic vulnerability. Post-October 7th, Israeli doctrine puts buffer zones over diplomacy, actively dominating neighbouring territories rather than merely reacting.
Turkey fields NATO’s second-largest military alongside Erdogan’s pragmatic diplomacy—condemning Israel publicly whilst cooperating privately.
Iran, economically crippled but strategically patient, maintains uranium enriched to 60% and a shattered network of proxy forces across the region.
Geography and Resources
Syria sits between Turkey, Israel, and Iraq, a punch bag among competing powers. Israel fears attacks from neighbouring territories, making buffer zones critical for its security. Turkey wants to prevent Kurdish independence movements along its southern border.
This territorial competition has already led to conflict. In January, Turkish forces clashed with Kurdish-led Syrian Democratic Forces along the Euphrates River.
Natural resources also drive tensions—Eastern Mediterranean gas reserves have sparked exploration rivalries, while water scarcity drives Turkish engagement in Syria and reinforces Israeli determination to maintain the Golan Heights watershed.
What’s next?
Three possible scenarios:
Most Likely: Continued Tension without Major War—Current trends continue with limited military exchanges between Israel and Turkish-backed forces in Syria, but no direct confrontation between major powers. Nuclear talks with Iran might resume but make little progress.
Second Most Likely: Limited Military Conflict—Trump’s upcoming Middle East tour could escalate tensions if he strongly backs Israeli concerns about both Iran and Turkey. This could lead to Israeli strikes against Iranian nuclear facilities, triggering attacks from Iran and its allies. Not a full-scale war, but this scenario could involve several weeks of fighting, rising oil prices, and refugee movements.
Least Likely: Diplomatic Breakthrough—Trump could leverage relationships with both Erdogan and Netanyahu to broker unexpected diplomatic agreements. This might include a new nuclear framework for Iran and an agreement between Israel and Turkey about their respective spheres of influence in Syria.
The biggest challenge is that actions taken by each country to increase its own security make others feel less secure, creating a dangerous cycle of escalation. With diplomatic channels breaking down and the nuclear agreement expiring in October, tensions are getting critical.
3️⃣ Western Lessons From ‘Made In China’
Hard Truths From China’s Economic Experiment
Strategic bets on high-potential sectors more effective than broad subsidies
Create domestic demand and scale before exposing industries to global competition
Policy commitment uninterrupted by electoral cycles provided crucial stability for business investment
Balance state direction with market discipline to avoid inefficiencies
China’s Strategic Sector Selection
China’s approach reveals an obvious truth that politicians everywhere struggle with: some sectors simply matter more than others.
Beijing has strategically targeted technologies with growing global demand—renewables, electric vehicles—alongside areas where technological leapfrogging remains possible. These strategic bets have yielded impressive results whilst Western governments scattered subsidies across declining legacy industries.
Beijing understood something economists often forget: manufacturing scale requires manufactured demand. No amount of production incentives substitute for consumers actually wanting your products.
Scale and Domestic Market Leverage
Scale matters. A lot. China has used its substantial domestic market to create initial demand through government procurement while simultaneously developing standards that fostered homegrown innovation.
The supporting infrastructure—from EV charging networks to specialised industrial parks—created ecosystems where firms could thrive before facing the cold winds of global competition.
This approach has worked spectacularly well for:
Telecommunications equipment
Solar panels
Battery technology
This home-first approach creates breathing space, allowing Chinese companies to reach competitive positions whilst avoiding premature exposure to international markets where established players enjoy significant advantages.
Policy Persistence Beyond Political Cycles
MIC25 has an uncomfortable truth for democracies: industrial transformation demands sustained commitment beyond the average political attention span. China’s policy endurance—maintaining support over decades rather than parliamentary terms—provides the predictability businesses crave when making long-term capital investments.
More impressively, China’s approach allowed for course corrections without triggering the kind of policy whiplash Western firms routinely endure. When initial results disappointed, strategies evolved rather than being abandoned entirely.
This patience doesn’t merely reflect authoritarian luxury; it recognises fundamental economic realities.
New industrial capabilities take decades to develop, not quarters to report.
The Delicate Balance Between State Direction and Market Forces
Even with centralised authority, China’s industrial ambitions faced implementation challenges that would look entirely familiar to Western policymakers. Provinces and cities scrambled to attract identical projects, creating ruinous duplication and overcapacity.
These coordination failures—multiple regions pursuing identical semiconductor fabs or battery plants—suggest industrial policy works best when reinforcing rather than replacing market signals.
The cautionary tale here is that even command economies struggle with resource allocation when multiple power centres compete for favour.
The biggest lesson from China’s experience? The delicate balance between state direction and market mechanisms. Distorting price signals too much eventually undermined the industries being supported.
Overproduction, capacity underutilisation and productivity stagnation all crept in wherever market discipline disappeared entirely.
Beijing’s planners discovered that removing competitive pressure eventually dulls innovation incentives, leaving protected champions vulnerable to more agile international competitors.
(As US tech giants appeal for government protection, you might wonder if the same logic applies there.)
China’s approach evolved beyond simple market share targets. Sophisticated industrial policy demands evaluation across multiple dimensions:
Innovation capabilities
Value-chain positioning
Productivity growth
Quality improvements
The mixed outcomes of MIC25 highlight the crucial distinction between narrow corporate success and broader economic benefits. Some interventions delivered handsome returns to favoured firms whilst generating limited productivity spillovers—precisely the scenario industrial policy aims to avoid.
The Lessons?
China’s experience cuts across political systems:
Coordinate across government departments to prevent duplication and wasteful competition
Align industrial policy with policy areas like education and infrastructure
Robust feedback mechanisms allow for course correction without policy abandonment
Maintain competitive pressure even within supported sectors to drive innovation
Continuously evaluate opportunity costs rather than focusing solely on visible successes
4️⃣ Empty Factories to Empty Promises
Britain’s populists survive and thrive post-Brexit
The instigators of Britain’s failed Brexit policy are prospering.
Reform UK captured 650+ council seats, 7 local authorities, and won a fifth parliamentary seat by just 6 votes in Runcorn & Helsby
Reform’s electoral breakthrough is concentrated in regions where manufacturing employment has fallen by 50-68% since 1979
Manufacturing’s share of UK GDP collapsed from 33% in 1948 to just 9% today
Reform UK’s stunning electoral breakthrough traces the precise geography of Britain’s industrial decline. The party’s strongest performances—in Durham, Derbyshire, Doncaster, and Lincolnshire—mirror where Britain’s manufacturing employment has collapsed most dramatically over four decades.
Populist success is the political aftershock of a seismic economic transformation engineered by successive British governments since 1948, when manufacturing formed the country’s industrial backbone, accounting for a third of GDP.
The older voters driving this change aren’t necessarily those directly affected by deindustrialisation, but often those who share nostalgic visions of pre-immigration Britain – the kind that pop up on seemingly innocent social media posts recalling 1960s streets scenes.
Reform’s electoral triumph in Runcorn—by just six votes—illustrates how thin the line between economic grievance and electoral insurgency has become. This former Labour stronghold now gives Reform its fifth MP, with leader Nigel Farage celebrating a direct transfer of support from the traditional left.
“Labour’s vote has collapsed and much of it has come to us.” — Nigel Farage
Ironically, Brexit’s broken promises—the ones made by Reform and Farage—accelerated this shift.
They were turbocharged by the Starmer government’s rapid adoption of austerity. After just ten months in power, Labour cuts to pensioner fuel subsidies and business tax increases infuriated its base.
Rather than neutralising right-wing criticism, Labour’s rightward drift on immigration simply legitimised Reform’s narrative.
Now Reform is exploiting these failures, promising low corporate taxes, energy deregulation, and public-pension “co-ownership” of critical infrastructure.
Pushing Back on Populism
Does it have to be this way? Electoral results from across the Anglosphere offer counter-examples to Britain’s populist surge. Canada’s Liberals secured victory after demonstrating “elbows out” opposition to Trump-style populism. Australia’s Labour government expanded its majority by confronting rather than accommodating right-wing rhetoric.
The contrast with Labour’s UK strategy couldn’t be greater. As Ben Ansell says:
“Labour’s approach amounts to saying ‘Farage is right, don’t vote for him’—a message with two fatal flaws: First, Farage is not in fact right. And second, if you tell people he is, they will definitely think they should vote for him.”
Labour believes its recent electoral rout was the result of insufficient “cultural conservatism” rather than addressing the economic devastation wrought by decades of deindustrialisation.
The real lesson from Australia and Canada is that centre-left parties succeed by offering distinctive alternatives to populism, not pale imitations. Successful leaders “showed a little fight” by vigorously challenging right-wing narratives rather than accommodating them.
Consequences: Britain’s Populist Future
Electoral realignment: Expect further Conservative collapse in manufacturing regions as Reform consolidates its position as the primary opposition to Labour in these areas.
Policy pressure: Both major parties will face increasing pressure to develop credible industrial strategies that go beyond rhetorical gestures.
Market scepticism: The investment community will grow increasingly wary of UK assets as political instability threatens policy continuity.
For seventy years, Britain chose finance over factories, City bonuses over regional prosperity. May’s local election results represent the political bill for that economic choice finally coming due.
5️⃣ Roots vs. Wings
How Social Bonds Shape Economic Mobility
Polish migrants who arrived after 2004 initially earned 15% less than British natives but now earn more
Polish wages have risen from 52% to 71% of British levels since 2004
Selective emigration contributes to success patterns—those not doing better often return to Poland
An illuminating conversation with a Polish friend recently highlighted the tension between community ties and economic mobility.
“My brother arrived in your country with £200 in his pocket and barely any English,” he explained. “He lived in a hostel, worked cleaning offices, saved every penny. Today he has a successful company. Why not your family?”
When I mentioned the limited opportunities in my hometown, he responded with genuine bewilderment.
“So why don’t people just move? Why don’t they retrain? Why don’t they take risks?”
The exchange reminded me of a profound truth: sometimes the deepest poverty isn’t financial but exists in the limitations we place on our own possibilities when every step forward feels like a step away from everything familiar.
The deep community bonds of my upbringing—generations from one town, distant relatives on almost every street, familiar faces in the shop queue—also defined the early boundaries of my ambition.
For my Polish friend’s brother, having fewer social ties became an unexpected advantage. No community obligations to meet. No family duties or expectations to uphold. No childhood reputation to maintain. Just pure economic opportunity.
The Economic Mobility Paradox
This pattern isn’t just anecdotal. The Economist reports that Polish migrants who arrived after 2004 initially earned 15% less than British natives. Today, their median wages have actually surpassed those of British workers—a real-life story of economic mobility.
Poles who once filled agricultural and hospitality jobs now earn more than natives. Many, like Pawel Labaj who progressed from cleaner to warehouse worker to manager, climbed through “a lot of sweat and commitment.”
Others transformed their careers completely—like Marta Kalemba, who progressed from factory worker to running her own accounting practice after getting her Polish qualifications recognised in Britain.
Part of this success comes from selective emigration—those not finding success often return to Poland, where wages have risen from 52% to 71% of British levels since 2004. The most successful migrants tend to stay.
The Social Roots Connection
My family’s experience stands in contrast with this pattern. My father escaped through the army, until his teenage girlfriend’s pregnancy brought him back. I was expected to stay close to home.
Major life decisions were filtered through their impact on family connections. Geographic mobility felt like betrayal rather than advancement.
This isn’t simply about individual choices—it’s about how social structures shape what feels possible. In communities with deep generational roots, moving for opportunity isn’t just a logistical challenge; it’s an identity crisis.
My Polish friend’s brother could reinvent himself without anyone witnessing the transformation. He could fail without shame. He could start at the bottom without explanations. His only benchmark was his own progress.
Addressing inequality requires more than economic opportunity—it requires support systems that make geographic and social mobility emotionally feasible for those with deep community ties.
Strong social bonds provide critical support but can sometimes limit economic mobility—finding balance between roots and wings is essential for both individuals and policymakers working to expand opportunity in left-behind communities.
6️⃣ AI vs. The Emotional Constant
Why Shakespeare Outlasts Science
Humanity’s emotional “operating system” remains remarkably static compared to our relentless knowledge expansion
AI excels at organising information but struggles with the human mode of meaning-creation
The continued relevance of ancient drama reveals evolutionary constraints on emotional development
AI’s most formidable challenge? Bridging pattern recognition with embodied meaning
Two dramas separated by 2,400 years. Aristophanes’ satires still raise knowing smiles whilst Newton’s calculus gets rewritten with each passing generation. This temporal dissonance tells us something rather profound about both artificial intelligence and ourselves.
The asymmetric evolution of human capacity
When we compare the longevity of creative works against scientific experiments, a curious pattern emerges. The emotional landscape of Aristophanes feels oddly familiar to modern audiences, whilst the revolutionary work of Aristotle appears comically primitive. This asymmetry isn’t just an academic curiosity – it illustrates the fundamental division between knowledge structures and meaning creation.
Our scientific understanding accelerates at breakneck pace. Yesterday’s breakthroughs become tomorrow’s footnotes. Yet our emotional architecture – the way we love, fear, hope and grieve – shifts at a glacial pace, if at all.
What does this tell us about artificial intelligence? Perhaps that AI faces a double challenge: catching up with rapidly evolving knowledge systems presents one hurdle, whilst grasping our relatively static emotional frameworks presents quite another.
The meaning monopoly
Current AI systems demonstrate remarkable prowess at pattern recognition and information organisation. They structure knowledge with unprecedented efficiency. But meaning – that slippery, contextual social construct emerging from lived experience – remains stubbornly human.
The persistence of ancient creative works suggests emotional intelligence evolves on evolutionary rather than cultural timescales. We no longer write log tables because mathematics advances. We still stage Shakespeare because feelings don’t.
This division raises intriguing questions about intelligence itself. Is meaning creation reducible to sufficiently sophisticated algorithms, or does it require the embodied, social experience unique to biological beings?
Is meaning just a bio-chemical heuristic, an evolutionary outcome specific to us – an intellectual appendix that has outgrown its usefulness?
The dual cognition conundrum
Maybe what we’re witnessing isn’t AI’s limitation but rather a reflection of human cognition’s dual nature. We excel both at creating structured systems of knowledge and at infusing those structures with meaning derived from our own constructed experience.
The most formidable challenge for artificial intelligence may not be processing power or algorithmic sophistication, but bridging this gap between structured knowledge and embodied meaning – a gap that spans our species’ entire evolutionary history.
For now, at least, we humans maintain our meaning monopoly whilst surrendering our organisational advantage.
Is this an advantage or a reflection of our own permanent infantilisation – an inability to outgrow our emotional operating system.
7️⃣ 7 THINGS Has A New Look
Whaddya think?
Inspired or irritating?
I like it—obviously—big thanks to Liam Ó Cathasaigh for re-imagining it.
There are a couple of things I’m considering, including a brief video “One Big Thing” (though I need to overcome my TV producer’s aversion to being on camera). I’m also keen to create some kind of in-person event.
If you have thoughts or advice on what these extensions should look like, please drop me a comment.
Thanks for reading!
Best,
Adrian
