Among the many news items over the past few weeks, one especially stood out last weekend; it shows that the time will soon come to increase, even if only slightly, the gold in your portfolio. While not a cry for gold at $2,000 an ounce within months, we think gold has very little downside from here, with near-term upside to $1,400 to $1,600. We are probably in the second inning or so toward recognition of an inflection point in the shift from Western economic hegemony to hegemony of the East. Later on in this game, we expect to see the yellow metal very likely cross the Dow and decidedly enter five-digit territory.

The news item that caught our attention carried a Dubai dateline and summarized comments from well-known British economist Lord Desai, head of the non-partisan Official Monetary and Financial Institutions Forum (OMFIF). One OMFIF function is to gather bankers and financial institution heads to discuss the world’s financial situation and bring possible changes to the table.

In Dubai, Desai said ‘a bit of gold’ could help stabilize special drawing rights (SDRs). These instruments date back to the 1940s; the International Monetary Fund (IMF) often uses them in various circumstances. Currently, an SDR consists of four reserve currencies, the U.S. dollar (now carrying the highest weight), followed by the euro, British pound, and Japanese yen. Developing countries often receive SDRs as credits.

Importantly, SDRs have served as liquidity buffers, most recently during the thick of the 2008 and 2009 financial crisis. According to researchers Yiping Huang and Shiro Armstrong, the IMF Executive Board in July 2009 backed allocation of SDRs as part of a package to bolster reserve assets of developing countries. The SDRs were a low-cost liquidity buffer for these lower-income countries. The key phrase here: “liquidity buffer.” The researchers noted that SDRs will “reduce” the need by developing countries “for accumulation of U.S. Government securities for the purposes of self-protection and liquidity.

In other words, SDRs could and probably should functionally serve as a liquidity buffer. Flash forward to 2013, with Europe into at least its fifth quarter of economic decline, the EU and euro zone shaking and the euro’s future in grave doubt. Despite the turmoil, gold, although historically a natural hedge, simply meandered with a downside bias. Then the European powers virtually ordered little Cyprus, suddenly out of money, to sell its gold for cash. Gold’s meandering downtrend turned into a full-fledged rout. Within five months, gold fell some 30 percent.

What had accounted for this meandering gold price? Had gold lost its role as a haven? You know that old saying—don’t fight City Hall? In this case the Bank of International Settlements (BIS), aka the Central Bank of central banks, served as City Hall. In early 2013, in response to the financial crisis, the BIS issued revised reserve rules for banks. It wanted to ensure that banks had adequate liquidity should another crisis occur. Market watchers had expected the BIS to include gold as a liquidity buffer—with little to no discount. They expected the BIS to let banks hold gold toward their liquidity buffer, and to the extent they used it, count between 80 and 100 percent of its face value. Instead, the BIS announced the rules with nary a mention of gold.

Then the coup de grace came when European Union leaders told Cyprus to sell gold to raise euros. Clearly, far from giving gold a critical role in the monetary system, the BIS considered it a sort of financial relic, no more than a source of funds to acquire paper reserves.

The BIS rules made Europe’s insistence on the Cyprus gold sale possible. On their face, they made no sense. After all, gold had been one of the best-performing assets during the market meltdown. Not only had the metal more than held its value, its volatility was among the lowest of major assets. So why exclude gold as a liquidity buffer, when the new BIS rules even allowed for inclusion of a small percentage of relatively low-rated (but not junk) corporate bonds.

We have no inside information. Whether by design or not, however, we think the BIS decided not to include gold at the same level as sovereign bonds (i.e., with little or no discount) so as to avoid giving a tacit blessing to gold “as a currency.” For if gold were recognized as a currency—especially in a disorderly fashion—all hell could have broken loose. Then-current reserve paper currencies would likely have lost tremendous value to gold. In other words, the value of gold would have vaulted dramatically higher. This would in turn have limited monetary policy options and could have precipitated wholly unpredictable events (even worse than previous).

Giving gold any weighting in SDRs could easily, as mentioned above, have blessed gold’s role as a liquidity buffer. Even if gold received much lesser weight than paper currencies (as it almost surely would have), it would remain a bona fide reserve currency. Moreover, despite varied weightings, the BIS would have noted the massive asymmetry between virtually unlimited supplies of paper money and gold, given the world’s limited supply of the metal.

The rush to gold would likely have been intense and sustained; it would very likely have lead to a new Bretton Woods agreement giving gold a new prominence. Please note: since 1400 and maybe before, except during wars, the last 45 years have been the longest stretch of world history in which gold did not play a major monetary role and was not a reserve currency.

What strikes us now: despite the best BIS efforts, gold since the end of 2007 has performed in line with U.S. stocks and bonds. This contrasts with many other commodities, such as oil, which has fallen some 50 percent. In the first decade of the 21st century gold soared alongside other commodities. That is what currencies should do. After all, rising commodity prices signal commodity scarcity and warn people to ration. Nations can never ration with paper money.

Gold’s performance during the past eight years even more clearly signals its role as a currency. After all, without commodities as a catalyst, how else could one rationalize the yellow metal’s performance relative to the world’s major reserve currency, the U.S. dollar.

It is also very likely that gold acts as a leading indicator of a sharp rebound in commodities. Keep in mind the world’s shift dramatically to the East, increasingly widely recognized as evidence by the rush to join China’s Asia Infrastructure Investment Bank (AIIB), a rival to the World Bank. We cannot remember a time since WWII when the British so badly snubbed the U.S. as it did when it joined China’s new bank as a founding member.

As its name implies, the AIIB intends to focus efforts on a multi-trillion dollar Eastern infrastructure development program in which China serves as the central player. That presages massive demand for commodities, and also a further shift in economic hegemony from West to East.

Under these circumstances it is ludicrous that reserve currencies do not include the yuan and/or gold. Ironically (fantastically so), U.S. Treasury Secretary Jacob Lew was responsible for derivatives at Citi Bank during 2008, speculative investments that nearly brought down our entire financial system. Yet now he lectures China on the need for greater reforms before the Middle Kingdom’s currency can join SDRs.

We find it mindless that few financial advisors suggest their clients carry some gold in their portfolios. But with the infrastructure bank and many other China initiatives (e.g. massive trade with Russia) likely to transact via yuan, we think that the end of American economic hegemony could soon become too hard to ignore. Gold and its correlates like silver will very likely become a much greater part of virtually everyone’s portfolio.

If you wonder why gold doesn’t now viciously fly to a new high, we suspect a bit of manipulation. Not from Americans but Chinese leaders, who clearly want to buy as much gold as possible before dictating a very dramatic change in the world economic order.