Australia’s Debt Time Bomb and a New Gold Horizon

A hidden fragility lies at the heart of Australia’s economy. Beneath headline GDP numbers is a debt structure more exposed than most Australians understand. With household debt at over 111% of GDP, Australia ranks among the most indebted nations on Earth. Our vulnerability to external shocks here is considerable. That’s a flashing red light in a world marching toward geopolitical rupture. If a war break were to break out in the Pacific, Australia would find itself caught in the economic crossfire. Gold wouldn’t just go up in price it would explode.

This is how financial warfare works, and this playbook is familiar. During simulations Jim Rickards helped run for the Pentagon in 2009, it was explored how countries might use gold, digital currencies, and sanctions in a new kind of conflict, one where banks and bonds matter more than bombs. Australia, with its dependence on China for trade and on global markets for credit, would be a prime target of economic disruption. In a shooting war over Taiwan or the South China Sea, the first thing to break will be trust in the system.

Australia’s export economy is levered to peace and trade. Roughly one-third of its exports go to China. Cut that off, and Australia’s current account plunges. The Australian dollar - a commodity currency in the best of times, would face a swift, downward repricing. That would push imported inflation higher. And the Reserve Bank of Australia would be stuck between a rock and our cratered housing market. Rate cuts would trigger more inflation but raise them and you detonate the mortgage bomb. Either way, trust in fiat eventually erodes, and that’s when gold moves from current highs to US$4000 and beyond very quickly.

In Rickard’s opinion, gold is not a commodity and not an investment. It’s money, and has been money for more than 5,000 years, and surely will outlast every central bank in existence today. Why else is the People’s Bank of China buying hundreds of tonnes of gold, or why has Russia stockpiled bullion after being cut off from the global SWIFT system? Emerging market central banks made 2022- 2023 the biggest gold buying years since records began.  They know what’s coming and they’re preparing for a post-dollar world.

If geopolitical tensions escalate in the Asia Pacific, gold and silver won’t just rise, they will decouple. In 2008, gold nearly tripled as trust in banks evaporated, and in 1980, gold went parabolic in the face of inflation and Soviet aggression. In 2020, with the pandemic and lockdown-induced chaos, bullion outperformed almost everything. With a potential war in the Pacific, gold could move to US$4000 on the back of broken trade routes, destroyed confidence, and the realisation that physical assets trump digital promises.

Silver could even outperform gold. It’s more volatile, but in a monetary reset scenario - discussed in Jim Rickards’ The New Case for Gold - silver often acts like ‘gold on steroids’. With industrial supply chains disrupted and investment demand rising, the thinness of the silver market makes it particularly susceptible to explosive upside. Physical silver, like physical gold, becomes difficult to source – so premiums rise, dealers run out, and investors scramble to get in late. That’s the kind of panic no algorithm can trade you out of.

What about Australia’s property market? It’s built on leverage and low rates. Property here has to date been resilient during low rates and relies heavily on credit and employment conditions. We are faced with unprecedented and unsustainable immigration levels In this high-stress geopolitical and inflationary environment, property becomes a slow-motion casualty. We are reminded of Japan in the 1990s and Ireland in 2009. Real estate is illiquid, heavily financed, and deeply exposed to credit conditions. And if banks get nervous, lending standards toughen and values fall. Investors fleeing property will look for, liquid, non-defaultable, physical assets. Gold.

The writing is on the wall, the financial war has already begun. Currency debasement, capital controls, sanctions, and central bank gold accumulation are all part of the opening barrage. For the unprepared, it will look like chaos. For the prepared and those paying attention, the roadmap is clear: when the world turns to gold, make sure you already own it.