THE REAL MOVE IN GOLD & SILVER IS YET TO START
Since the October 2023 gold low of just over $1,600 gold is up but is anyone buying?
Well no, certainly none of the normal players.
Gold Depositories, Gold Funds and Gold ETFs have lost just under 1,400 tonnes of their gold holdings in the last 2 years since May 2022.
But not only gold funds are seeing weak buying but also mints such as the Perth Mint and the US Mint with its coin sales down 96% year on year.
Clearly gold knows something that the market hasn’t discovered yet.
RATES MUCH HIGHER
For the last few years I have been clear that there will be no lasting interest rate cuts.
As the chart shows below, the 40 year down trend in US rates bottomed in 2020 and since then rates are in a secular uptrend.
I have discussed this in many articles as well as in for example this interview from 2022 when I stated that rates will exceed 10% and potentially much higher in the coming inflationary environment, fuelled by escalating deficits and debt explosion.
“But the Fed will keep rates down” I hear all the experts call out!
Finally the “experts” are changing their mind and believe that cuts will no longer happen.
No central bank can control interest rates when its government recklessly issues unlimited debt and the only buyer is the central bank itself.
PONZI SCHEME WORTHY OF A BANANA REPUBLIC
This is a Ponzi scheme only worthy of a Banana Republic. And this is where the US is heading.
So strongly rising long rates will pull short rates up.
And that’s when the fun panic starts.
As Niall Ferguson stated in a recent article:
“Any great power that spends more on debt service (interest payments on the national debt) than on defence will not stay great for very long. True of Habsburg Spain, true of ancien régime France, true of the Ottoman Empire, true of the British Empire”.
So based on the CBO (Congressional Budget Office), the US will spend more on interest than defence already at the end of 2024 as this chart shows:
But as often is the case, the CBO prefers not to tell uncomfortable truths.
The CBO forecasts interest costs to reach $1.6 trillion by 2034. But if we extrapolate the trends of the deficit and apply current interest rate, the annualised interest cost will reach $1.6 trillion at the end of 2024 rather than in 2034.
Just look at the steepness of the interest cost curve above. It is clearly EXPONENTIAL.
Total Federal debt was below $1 trillion in 1980. Now, interest on the debt is $1.6 trillion.
Debt today $35 trillion rising to $100 trillion by 2034.
The same with the US Federal Debt. Extrapolating the trend since 1980, the debt will be $100 trillion by 2036 and that is probably conservative.
With the interest trend up as explained above, a 10% rate in 2036 or before is not unrealistic. Remember rates back in the 1970s and early 1980s were well above 10% with a much lower debt and deficit.
US BONDS – BUY THEM AT YOUR PERIL
Let us analyse the current and future of a US treasury debt (and most sovereign debt):
- Issuance will accelerate exponentially
- It will never be repaid. At best only deferred or more probably defaulted on
- The value of the currency will fall precipitously
HYPERINFLATION COMING
So where are we heading?
Most probably we are facing an inflationary period leading to probable hyperinflation
With global debt already up over 4x this century from $80 trillion to $350 trillion. Add to that a Derivative mountain of over $2 quadrillion plus unfunded liabilities and the total will exceed $3 quadrillion.
As central banks frenetically try to save the financial system, most of the 3 quadrillion will become debt as counterparties fail and banks will need to be saved with unlimited money printing.
BANCA ROTTA – BANKRUPT FINANCIAL SYSTEM
But a rotten system can never be saved. And this is where the expression Banca Rotta derives from – broken bench or broken bank as my article from April 2023 explained.
But neither a bank nor a sovereign state can be saved by issuing worthless pieces of paper or digital money.
In March 2023, four US banks collapsed within a matter of days. And soon thereafter Credit Suisse was in trouble and had to be rescued.
The problems in the banking system have just started. Falling bond prices and collapsing values of property loans are just the beginning.
This week Republic First Bancorp had to be saved.
Just look at US banks’ unrealised losses on their bond portfolios in the graph below.
Unrealised losses on bonds held to maturity are $400 billion.
And losses on bonds available for sale are $250 billion. So the US banking system is sitting on identified losses of $650 billion just on their bond portfolios. As interest rates go up, these losses will increase.
Add to that, losses on loans against collapsing commercial property values and much more.
EXPONENTIAL MOVES
So we will see debt grow exponentially as it has already started to do. Exponential moves start gradually and then suddenly whether we talk about debt, inflation or population growth.
The stadium analogy below shows how it all develops:
It takes 50 minutes to fill a stadium with water, starting with one drop and doubling every minute – 1, 2, 4, 8 drops etc. After 45 minutes the stadium is only 7% full and the last 5 minutes it goes form 7% to 100%.
THE LAST 5 MINUTES OF THE FINANCIAL SYSTEM
So the world is most probably now in the last 5 minutes of our current financial system.
The coming final phase is likely to go very fast as all exponential moves do, just like in the Weimar Republic in 1923. In January 1923 one ounce of gold cost 372,000 marks and at the end of November in 1923 the price was 87 trillion marks!
The consequences of a collapse of the financial system and the global economy, especially in the West can take many decades to recover from. It will involve a debt and asset implosion plus a massive contraction of the economy and trade.
The East and South and especially the countries with major commodity reserves will recover much faster. Russia for example has $85 trillion in commodity reserves, the biggest in the world.
As US issuance of treasuries accelerate, the potential buyers will decline until there is only one bidder which is the Fed.
Even today no sane sovereign state would buy US treasuries. Actually no sane investor would buy US treasuries.
Here we have an already insolvent debtor that has no means of repaying his debt except for issuing more of the same rubbish which in future would only be good for toilet paper. But electronic paper is not even good for that.
This is a sign in a Zimbabwe toilet:
Let us analyse the current and future of a US treasury debt (and most sovereign debt):
- Issuance will accelerate exponentially
- It will never be repaid. At best only deferred or more probably defaulted on
- The value of the currency will fall precipitously
That’s all there is to it. Thus anyone who buys US treasuries or other sovereign bonds has a 99.9% guarantee of not getting his money back.
So Bonds are no longer an asset of value but just a liability for the borrower that will or can not be repaid.
What about stocks or corporate bonds. Many companies won’t survive or experience a major decline in the stock price together with major cash flow pressures.
As I have discussed in many articles, we are entering the era of commodities and especially precious metals.
The coming era is not for speculation but for trying to keep as much of what you have as possible. For the investor who doesn’t protect himself, there will be a wealth destruction of an unprecedented magnitude.
There will no longer be a question what return you can get on your investment.
Instead it is a matter of losing as little as possible.
Holding stocks, bonds or property – all the bubble assets – are likely to lead to massive wealth erosion as we go into the “Everything Collapse”.
THE NEW ERA OF GOLD AND SILVER
For soon 25 years I have been urging investors to hold gold to preserve their wealth. Since the beginning of this century gold has outperformed most asset classes.
Between 2000 and today, the S&P, including reinvested dividends, has returned 7.7% per annum whilst gold has returned 9.2% per year or 8X.
In the next few years, all the factors discussed in this article will lead to major gains in the precious metals and falls in most conventional assets.
There are many other positive factors for gold.
As the chart below shows, the West has reduced its gold reserves since the late 1960s, whilst the East is growing its gold reserves strongly. And we have just seen the beginning of this trend.
The US and EU sanctioning of Russia and the freezing/confiscation of the Russian assets in foreign banks are very beneficial for gold.
No sovereign states will hold their reserves in US dollars any more. Instead we will see central bank reserves move to gold. That shift has already started and is one of the reasons for gold’s rise.
In addition, gradually the BRICS countries are moving away from the dollar to trading in their local currencies. For commodity rich countries, gold will be an important part of their trading.
Thus there are major forces behind the gold move which has just started and will reach further both in price and time than anyone can imagine.
HOW TO OWN GOLD
But remember for investors, holding gold is for financial survival and protection of assets.
Therefore gold must be held in physical form outside the banking system with direct access for the investor.
Also gold must be held in safe jurisdictions with a long history of rule of law and stable government.
The cost of storing gold should not be the primary consideration for choosing a custodian. When you buy life insurance you mustn’t buy the cheapest but the best.
First consideration must be the owners and management. What is their reputation, background and previous history.
Thereafter secure servers, security, liquidity, location and insurance are very important.
Also, high level of personal service is paramount. Many vaults fail in this area.
Preferably gold should not be held in the country where you are resident, especially not in the US with its fragile financial system.
Neither gold nor silver has started the real move yet. Any major correction is likely to come from much higher levels.
Gold and silver are in a hurry so it is not too late to jump on the gold wagon.
THE REAL MOVE IN GOLD & SILVER IS YET TO START
VON GREYERZ partner, Matthew Piepenburg, joins John Buttler (Southbank Research) and David Lin in a spirited discussion on the omni-present yet undeniably important theme of the USD and its historical implications for rising gold.
Understanding gold tailwinds requires an understanding of debt forces and their impact on fiat currencies in general and the USD in particular. Toward that end, Piepenburg opens with a high-level (yet fact-focused) assessment on the current and unprecedented debt crisis in the land of the world reserve currency. Piepenburg unpacks how such debt crises impact a broad range of market themes—from risk assets, rate policies, recessionary forces, inflation cycles and precious metals.
When asked about the time horizon for such events to unfold, Piepenburg argues that the process has already begun. He gives example after example of real-time signals of a USD in open distrust and hence open decline. David asks if and how sovereign deficits impact stock markets. Piepenburg and Buttler address this question in divergent ways, but both agree that even a Fed-supported market rising in a background of cancerous debt levels can only be “maintained” at the expense of a debased and terminally ill (Fed-printed) currency. Piepenburg and Buttler then address the causes, risks and opportunities in a rising equity market bubble.
David asks why the USA has yet to experience hyperinflation, to which Piepenburg and Buttler share their opinions. For Piepenburg, the inflationary end-game is a matter of cycling through dis-inflationary interest rate and recessionary cycles, which will be followed by highly inflationary direct and indirect QE policies out of DC. In this light, the conversation turns to current and projected Fed policies, record UST issuance, long-term interest rate direction and the hard math behind real rather than reported inflation.
All themes, of course, lead to gold and the conversation ends with a review of all the forces–from the oil markets, de-dollarization trends among the BRICS+ nations to COMEX changes and a debt-trapped/cornered US Fed–which point toward an inherently weaker USD. This all explains the current gold rise and a much greater to rise to come.
THE REAL MOVE IN GOLD & SILVER IS YET TO START
Needless to say, we at VON GREYERZ spend a good deal of time thinking about, well… gold.
The Complex, the Simple, the Math and the History
Year after year, and week after week, there is always a new way to examine gold price moves and decipher the obvious and not-so obvious forces which flow behind, ahead, above and below its monetary and, yes, metallic, move through time.
Today, deep into the early decades of the 21st century, and well over 100 years since the not-so immaculate conception of the Fed in the early 20th century, we could (and have) spent pages and paragraphs on key turning points in the rigged to fail history of paper vs. metallic money.
At times, this effort can and has seemed intense and even complex, with all kinds of historical facts, mathematical comparisons and “big events.”
The turning points of gold’s relationship with fiat currencies, and its role in preserving wealth, for example, are known to an admitted minority—as only about 0.5% of global financial allocations include physical gold.
Gold’s Language
Yet the need, role and direction of gold is fairly blunt, at least for those with eyes to see and ears to hear.
History, for example, has some clear things to say about paper money.
And so does gold.
From the Bretton Woods promises of 1944 and Nixon’s open and subsequent welch on the same in 1971 to the 2001 outsourcing of the American dream to China under Clinton (and the WTO) or the recent weaponization of USD in Q1 of 2022, gold has been watching, acting and speaking to those who understand her language.
The Big Question: Why Is Gold Rising Now?
And this year, with gold reaching all-time-highs, piercing resistance lines and racing toward what the Wall Street fancy lads call “price discovery,” we are understandably getting a lot of interview requests, phone calls and even emails from friends otherwise silent for years and now suddenly asking the same thing:
“Why is gold rising now?”
The Wall Street side of my odd brain, like it or not, gets all excited by such questions.
Never at a loss for words, my pen and mouth rapidly seek to wax poetic on the many answers to why gold matters forever in general, and why it is rising in particular now.
Toward that end, the list of the fancy and not-so-fancy answers to this question in recent years, articles and interviews could look as simple (or as complex) as the following list of 7 key factors:
The Malignant Seven
- Every debt crisis leads to a currency crisis—hence: Good for gold.
- All paper currencies, as Voltaire quipped, eventually revert to their paper value of zero, and all debt-soaked nations, as von Mises, David Hume and even Ernest Hemingway warned, debase their currencies to retain power—hence: Good for gold.
- Rising rates (and fiscal dominance) used to “fight inflation” are too expensive for even Uncle Sam’s wallet, thus he, like all debt-soaked nations, will debase his currency to pay his own IOUs—hence: Good for gold.
- Global central banks are dumping unloved and untrusted USTs and stacking gold at undeniably important levels—hence: Good for gold.
- After generations of importing US inflation and being the dog wagged by the tail of the USD, the BRICS+ nations, prompted by a weaponized Greenback, are now turning their tails slowly but surely away from the USD dog—hence: Good for gold.
- The Gulf Cooperation Council oil powers, once seduced (circa 1973) into a Petrodollar arrangement by a high-yielding UST and globally revered USD, are now openly selling oil outside of the 2024 version of that far less-yielding UST and far less-trusted USD—hence: Good for gold.
- That legalized price-fixing sham otherwise known as the COMEX employed in 1974 to keep a permanent boot to the neck of the gold price, is running out of the physical gold needed to, well…price fix gold—hence: Good for gold.
In short, each of these themes–from sovereign (and unprecedented) debt levels, historical debt lessons, the secrets of the rate markets, global central banks dumping USTs or the implications of changing oil markets to the OTC derivatives scam masquerading as capitalism–all DO explain why gold is rising now.
This list, of course, may be simple, but the forces, indicators, lingo, math and trends within each theme can be admittedly complex, as each theme is in fact worthy of its own text book rather than bullet point.
Indeed, currencies, markets, history, bonds, geopolitics, energy moves and derivative desks are complicated little creatures.
But despite all this complexity, study and deliberation, if you really want to address the question of “why is gold rising now?”—the answer is almost too simple for those of us who wish to appear, well… “complex.”
The Too-Simple Answer to the Big Question
In other words, the simple answer—the answer that cuts through all the fog, lingo and math of “sophisticated” financial markets–boils down to this:
GOLD IS NOT RISING AT ALL. THE USD IS JUST GETTING WEAKER AND WEAKER.
At VON GREYERZ, we never measure gold’s value in dollars, yen, euros or any other fiat currency. We measure gold in ounces and grams.
Why?
Because history and math (as well as all the current and insane financial, geopolitical, and social events staring us straight in the eyes today) teach us not to trust a currency backed by man (or the “full faith in trust” of the UST or a Fed’s mouse-clicked currency), but instead to seek value in monetary metals created by nature.
Fake Money & Empty Promises
Once a currency loses a gold backing (nod to Nixon), it is nothing more than the empty promise of a government now free to print and spend without a chaperone to buy votes, market bubbles and even a Nobel Prize (i.e., what Hemingway called “temporary prosperity”) but then hand the bill and inflation to future generations (what Hemingway then called “permanent ruin”).
Gold Does Nothing
So yes, gold, as Buffet and others have quipped, “does nothing.” It just sits there and stares at you.
But while this yield-less pet rock sits there “doing nothing,” the currency by which you measure your wealth is in fact quite busy melting like an ice cube–one day, month and year at a time.
Here’s to Doing Nothing: Price vs. Value
Sometimes a picture can say a thousand words and make the most complex economic topics or themes, like “price vs. value” or “store of value,” make immediate sense.
Think, for example, about a 1-ounce bar of gold just doing nothing in say… 1920.
Well, if you had 250 of those do-nothing ounces in a shoe box in 1920, which was “priced” then at around $20 USD per ounce, you could afford the average US home, then priced at $5000.
Today, however, the average price of a US home is $500,000.
So, if your grandfather left you a shoebox with 5000 crumpled Dollars inside, it would not even pay for the landscaping needed for that same house today.
But if your grandfather had instead handed you a shoebox with those same 250 singe-ounce bars of gold (today “priced” at 2300/ounce), you could buy the same average home and the landscaper too—with a nice tip for the latter.
So, do you still think those little gold bars just stared back at you, doing nothing?
After all, the shoe box with the 5000 USDs inside was very busy doing one thing very well, namely: Losing its value like snow melting off a spring mountainside…
So, which shoebox would you want to measure your wealth?
The one measured in fiat dollars actively losing value? Or the one measured in gold ounces “doing nothing” but retaining its value?
Sometimes the complex really is that simple.
The Next Big Question: Where’s Gold Headed Tomorrow?
The pathway to answering such a question is just as clear as the one we just traveled.
The aforementioned “Malignant Seven” are each factors which we believe will continue to push the USD down and hence gold higher, because, and to repeat: It’s not that gold will get stronger, it’s just that all fiat currencies in general, and the weaponized, distrusted and over-indebted USD in particular, get weaker.
But for those still understandably and realistically convinced that despite its myriad and almost endless flaws, the US (and its Dollar) is still, for now at least, the best horse in the glue factory, a case can be made that measured relative to other currencies (i.e., the DXY), that the USD is supreme, and that when and as financial markets weaken, investors will flock to it like a lifeboat in a tempest.
Milkshake Theory?
Such a credible view is held by very smart folks like Brent Johnson, with whom I have discussed the USD at length.
Brent’s “milkshake theory” intelligently argues that powerful demand forces from the euro dollar, SWIFT and derivative markets, for example, create a massive, “straw-like” sucking sound for the “milky” USD, which demand will keep it strong, and send it stronger, in the seasons ahead.
He may in fact be right.
But I think differently.
Why?
Two primary reasons stick out.
No “Straw” for the UST
First, despite the undeniably powerful demand forces at play for the USD, demand for USTs is, and has been, tanking around the world since 2014. That is, foreigners don’t trust the US IOUs as much as they did before America became a debt trap.
Ever since foreign (central bank) interest in USTs began net-selling in 2014, and gold interest began net-buying in 2010, the only buyer of last resort for US public debt has been the US Fed, and the only tool the US Fed has to purchase that debt is a mouse-clicker (“money printer”) at the Eccles Building.
Unfortunately, creating money out of thin air is not a sustainable policy but a near-term fantasy. More importantly, such a policy is inherently, and by definition: Inflationary.
My US Realpolitik Theory…
The second, and perhaps more important reason the USD’s declining future is fairly easy to see (or argue), is this:
EVEN UNCLE SAM WANTS AND NEEDS A WEAKER DOLLAR.
Why?
Because the only way out of the biggest debt hole the US has ever seen is to inflate its way out of it by debasing the currency to “save” an otherwise rotten system.
We’ve argued this for years, and the facts supporting this historically-repeated pattern (and view) haven’t changed; they’ve just grown worse.
That is why it was easy to foresee that inflation would not be “transitory” despite all the useless commentary (and Fed-speak) arguing to the contrary.
That is also why it was easy to see that Powell’s “war on inflation” was a political ruse—an optics play.
Powell’s real aim was (and remains) inflationary via negative real rates (i.e., inflation higher than 10Y bond yields).
Thus, even while pursuing his “higher-for-longer” and anti-inflationary rate hikes, actual inflation, which Powell needed, was still ripping.
But he (and the BLS) was able get around this embarrassing CPI reality by simply lying about the actual inflation…
In other words: Classic DC fork-tonguing…
China is Not Turning Japanese
But in case you still need further proof that the US wants and needs a weaker USD to fake its way out of their self-created debt disaster via an increasingly diluted USD at YOUR expense, just consider what’s happening with China.
Unbeknownst to many, Yellen has been scurrying off to Asia to convince, cajole or even threaten China into accepting a weaker USD vs the CNY.
Why?
Because the prior, “stronger” 40-year version of the Dollar has rendered expensive US exports (and trade deficits) unable to compete with cheaper Chinese goods.
This floating currency game was a trick the US played on Japan when I was a kid—i.e., weaken the USD to fight the then-rising Sun of Japan’s then rising power.
But China ain’t Japan. It won’t float its currency in dollar terms.
So, what then can the US do to weaken the USD without upsetting China?
Does DC Finally Want Higher Gold Prices?
Well, as Luke Gromen once again makes beautifully clear, the easiest path forward for all parties concerned is to simply (and finally) let gold go much, much higher.
The surest and steadiest path to a weaker USD is higher gold.
Yellen’s Treasury Department could use its Exchange Stabilization Fund to buy/sell gold and other financial securities to control the USD without having to rely so much on the Fed’s now embarrassing money printer.
Gold is now a critical pivot point and tool for the US. If gold went, for example, to $4000 while CNY gold sits at 16,000, China’s central bank would have to re-rate higher in Dollar terms, pushing the CNY higher.
But such an arrangement won’t upset China, as it holds a lot more gold than the World Gold Council reports.
Rather than float the CNY in Dollar terms, China could instead float its CNY in GOLD terms.
In short: A veritable win-win for the China and the US, with gold now leading the way.
Or stated otherwise, you know it’s gonna be a gold tailwind, when both China and DC are seeking higher gold.
Based on the foregoing, do you still think gold does nothing?
Think harder.
THE REAL MOVE IN GOLD & SILVER IS YET TO START
In this full-ranging discussion with Anthony Fatseas of WT Finance, VON GREYERZ partner, Matthew Piepenburg, squarely addresses the financial, market, currency and central bank forces which evidence an embarrassing disconnect between markets at blow-off tops and a Main Street economy openly blowing away…In this backdrop, the direction and role of gold is now undeniably significant.
Piepenburg opens by distinguishing a rising market from a so-called “resilient” economy by citing recessionary facts and math against the so-called “full employment” and “robust GDP” public narrative. Piepenburg sees a dangerously narrow S&P “ripping” in a Pavlovian response to promises of 2024 rate cuts and what he describes as “backdoor QE” trending toward direct QE to “save” broke(n) credit markets at the expense of the USD. These facts explain gold’s secular move north. As for markets, once net-income margins in the S&P 5 transition from expansion to contraction, stocks will fall in the backdrop of a global rather than regional recession, which makes the current bubble far more dangerous than prior market reversals/mean-reversions in 2000 or 2008.
Piepenburg cites the lessons of math (trillions in debt-based “growth”) and history (from 18th century France to today) to plainly reveal what Hemingway described as the sad transition from “temporary prosperity to permanent ruin” via an historically repeated template of debasing the currency (inflation) and going to war (proxy or direct) to distract a centralized public from the debt failures of their weak leaders. Toward this end, Piepenburg addresses all the forces destroying the USD (debt, de-dollarization, petrodollar shifts, example after example of hidden, “backdoor” QE, record-high T-Bill issuance and unlimited yet hidden leverage permission by the big banks to buy unloved government debt off the Fed’s balance sheet).
Piepenburg makes an open joke of “reported inflation” and gets to the honest data to explain why the US needs a weaker USD. Gold, of course, is rising, and will continue to rise, simply because the USD is now, and will continue to be, inherently weaker, regardless of its relative strength. Again: “It’s common sense” colliding with the lessons of basic math & history.
The discussion closes with the unspoken danger (and current reality) of increased centralization, grotesque wealth inequality and less freedoms, the evidence of which is sadly everywhere. Is there a “way out” of currency debasement, economic risk and continued social unrest? Piepenburg is not so hopeful, as leadership today, across the world, is largely devoid of basic honesty, economic savvy or a respect for history.
Preparation is up to each of us, not our leaders.
THE REAL MOVE IN GOLD & SILVER IS YET TO START
The desire of gold is not for gold. It is for the means of freedom and benefit.
Ralph Waldo Emerson
Gold is now in a hurry and silver even more so.
The price moves in the coming months and year are likely to be spectacular. The combination of technical and fundamental factors can easily drive gold well above $3,000 and silver to new highs above $50.
Forecasting gold is a mug’s game, as I have often stated.
But that is in the short term.
In the medium to long term, forecasting the Gold price is a cinch.
How can I be so certain?
Well, since the history of gold and money began, gold has always increased in value measured against fiat money.
Voltaire gave us the formula in 1729 when he said:
PAPER MONEY EVENTUALLY RETURNS TO ITS INTRINSIC VALUE – ZERO
So why has no investor or layman ever heeded the simple fact that –
ALL CURRENCIES HAVE WITHOUT FAIL GONE TO ZERO.
What most people, including experienced investors, don’t understand is that gold doesn’t increase in value.
Gold just maintains stable purchasing power. A Roman toga 2000 years ago cost 1 ounce of gold and a tailored suit today also costs 1 ounce of gold.
So it is really totally wrong to talk about gold going up when it is the unit we measure gold in that goes down. Just as all fiat money has done.
Just take gold measured in US dollars. As the illustration below shows, the value of the dollar since 1971 has crashed, measured in real terms which is gold.
As the picture shows, 1 ounce of gold cost $35 in 1971. Today 53 years later 1 ounce of gold costs $2,300. So has gold increased in value 66x since 1971?
No of course not, it is the dollar which has declined in value and purchasing power by 98.5% since 1971.
So what will gold be worth in the next 5 years? That is of course the wrong question.
Instead we must ask how much will the dollar and all currencies decline in real terms in the next few years?
Gold and silver have not increased in line with money supply or inflation and are severely undervalued.
Just look at gold adjusted for US CPI (Consumer Price Index) in the graph below.
So if we inflation adjust the gold price, the 1980 high at $850 would today be $3,590.
But if we adjust the gold price for REAL inflation based on Shadow Government Statistics calculation, the gold price equivalent of the $850 high would today be $29,200.
In the 1980s the inflation calculation was adjusted, by the US government, to artificially improve/reduce official inflation figures.
And if we adjust the silver price for US CPI, the 1980 silver high of $50 would today be $166.
Adjusted for REAL inflation, the $50 high silver in 1980 would today be $1,350.
GOLD – LONG SIDEWAYS MOVES FOLLOWED BY EXPLOSIONS
Gold makes powerful moves and then goes sideways for long periods. After the gold explosion from $35 in 1971 to $850 in 1980, gold spent 20 years correcting until 2000.
That was the time that we decided that gold was now ready for the next run at the same time as risk in stock markets, debt and derivatives was starting to look dangerous.
So in 2002 we made major investments into physical gold at $300 for investors and for ourselves. At the time I recommended up to 50% of financial assets into gold based on wealth preservation principles and also the fact that gold at the time was unloved and oversold and thus represented excellent value.
WE HAVE LIFTOFF!
As gold went through $2,100 in early March, I declared “GOLD – WE HAVE LIFTOFF!”
Since then gold has moved up another $200 but that is the mere beginning of a secular move.
After the move from $300 in 2002 to $1920 in 2011 gold had a long correction again between 2013 and 2016. The break of the first Maginot Line (see chart) was predictable (article Feb 2019). Then in March 2023 it was clear that the second Maginot Line would break and we were seeing the beginning of the demise of the financial system as four US banks and Credit Suisse collapsed within a mater of days.
I discussed this in my March 2023 article “THIS IS IT! THE FINANCIAL SYSTEM IS TERMINALLY BROKEN”
HOLDING GOLD REQUIRES PATIENCE
The message I want to convey with the two graphs above is that gold investing requires patience and obviously timing of the entry points. But in the long term investors will be extravagantly rewarded and at the same time hold the best insurance against a rotten system that money can buy.
Gold has consolidated under $2,000 since August 2020. The recent breakout is extremely important and not the end of a move.
No, this is the beginning of a move that will reach heights that today are unfathomable.
I am in no way intending to be sensational, but just trying to explain that fundamental and technical factors are now pointing to a secular bull market in gold and silver.
Also, normal measures of overbuying will not be valid. Gold and silver will in the coming months be overbought for long periods of time.
But don’t forget that there will also be vicious corrections, especially in silver which is not for widows and orphans.
I want to emphasise again that our intention to invest heavily in gold and much less heavily in silver (much more volatile), was primarily for long term wealth preservation reasons. That reason is more valid than ever today.
THE EVERYTHING COLLAPSE WILL COME
Since we have been expecting the “Everything Bubble” to turn into the “Everything Collapse” (see my article April 2023), all the bubble assets like stocks, bonds and property are likely to decline substantially in real terms which means measured in gold.
I willingly admit that I have been premature in predicting the Everything Bubble to collapse in nominal terms. But in real terms almost all major asset classes have underperformed compared to gold since 2000 including stocks.
It is only the illusion of growth and prosperity based on worthless money creation that keeps this circus travelling on. But the circus acts will soon run out of tricks as the world discovers that this is only a mirage which has totally deluded us.
If we take stocks as an example, gold has outperformed the Dow and S&P since 2000.
Here is what I wrote 2 weeks ago:
The world’s best kept investment secret is GOLD.
- Gold has gone up 7.5X this century
- Gold Compound annual return since 2000 is 9.2%
- Dow Jones Compound annual return since 2000 is 7.7% incl. reinvested dividends
- So why are only 0.6% of global financial assets in gold?
- The simple answer is that most investors don’t understand gold because governments suppress the virtues of gold.
See my article on this subject
Stocks are now in position where we could have a major decline/collapse at any time.
WOLVES IN SHEEP’S CLOTHING
So back to the circus. The leaders of the Western World, whether we take the US, UK, Canada, Germany, France etc are mere clowns trying to fool their people with fake costumes (wolf in sheep’s clothing) and fake acts whether it is:
Money printing, debts, vaccines, climate, war, migration, more lies, propaganda, moral and ethical decadence to mention but a few of the problems that are leading us to the collapse of the Western World.
Real clowns would probably do a better job than current leaders. They would at least entertain us instead of bringing the misery that a majority of people are currently experiencing.
Yes, I am aware that there is a small elite that is benefiting dramatically from the shameful mismanagement of the world economy whilst the majority suffers badly from inept leadership around the world.
So how will this end? In my view, as I have outlined in many articles, it can only end one way which is a total collapse of the financial system as well as of the political system.
Will we first have hyperinflation and then a deflationary implosion or will it go straight to the implosion. Will there be a global war. Well, the US and most Western leaders are doing their utmost to start a World War against the will of the people. There is absolutely no attempt to find a peaceful solution.
Instead it is more weapons and more money to escalate the war as well as pushing as many countries as possible into NATO. Both Biden and Stoltenberg (NATO leader) also want Ukraine – a warring nation – to join NATO.
And with today’s sophisticated and dangerous weapons, no one can win a war.
Obviously, China, Russia, North Korea and Iran would win a war with boots on the ground at a cost of 100s of millions of lives. But modern wars are won in the air. And with around 15,000 nuclear warheads, the world can be destroyed many times over in a few minutes.
The world has never had a global economic and political crisis of this magnitude with so many destructive weapons, both financial (debt, derivatives) and military.
So to forecast the outcome is clearly impossible. One can only hope that people power will prevail and that incompetent leaders will be pushed out.
Otherwise there is little us ordinary people can do.
Wealth preservation in the form of physical gold, owned directly and in a safe jurisdiction (countries like the US, Canada or EU are not safe politically) is clearly the best insurance investors can buy.
Also we must assist family and friends in the difficult times ahead and make that circle the kernel of our lives (if it isn’t already).
And remember that most of the wonderful things in life are free like nature, music, books etc.
THE REAL MOVE IN GOLD & SILVER IS YET TO START
In recent weeks, gold has reached new all-time highs in many currencies, including the US dollar, the euro and the Swiss franc. We want to take the euphoric mood among gold investors as an opportunity to focus on a fundamental topic. From our point of view, the gold sector is riddled with an elementary misunderstanding. Many gold investors and analysts operate on an erroneous assumption: they attach too much importance to annual production and annual demand. We often read that the gold price cannot drop below production costs. We would like to discuss this misconception in the following.
Every gramme of gold that is held for a variety of reasons is for sale at a certain price. Many owners would sell at a price slightly above spot, others would only sell at a substantially higher price. If, due to favorable prices, a private individual wants to sell his gold holdings that he acquired decades ago, it will not reduce the overall supply of gold. All that happens is the transfer from one private portfolio to another private portfolio. To the buyer, it makes no difference whether the gold was produced three weeks or three millennia ago.
This means the annual gold production of currently more than 3,600 tons is of relatively little significance to the pricing process. Rather, the supply side consists of all the gold that has ever been produced. The recycling of existing gold accounts for a much larger share of supply than is the case for other commodities. Paradoxically, gold is not in short supply– the opposite is the case: it is one of the most widely dispersed goods in the world. Given that its industrial use is limited, the majority of all gold ever produced is still available.
In contrast to other commodities such as oil, copper or agricultural products, there is an enormous discrepancy between annual production (= flow) and the total available stock of gold. In other words, gold has a high stock-to-flow ratio (SFR). The high stock-to-flow ratio is the most important characteristic of gold (and silver). The total gold ever mined amounts to almost 213,000 tons. Annual production in 2023 was just over 3,650 tons. Dividing the two amounts gives a stock-to-flow ratio of 58.4, which means that the current annual production must be maintained for more than 58 years to double the current gold stock.
| Total reserves in tons (stock) | % share of total reserves (stock) | |
| Jewelry | 96,500 | 45% |
| Private holdings (bars, coins, ETF) | 47,500 | 22% |
| Central bank holdings | 36,.700 | 17% |
| Others | 32,000 | 15% |
| Total | 212,600 | 100% |
| Estimated mining production (flow) | 3,600 | 1.7% of total stock |
Gold holdings are currently growing by around 1.7% a year, which is much slower than all monetary aggregates around the world. This growth is roughly in line with population growth. Confidence in the current and future purchasing power of money depends largely on how much money is currently available and how the quantity will change in the future.
Gold Stock (Above Ground Gold), in Tonnes, Money Supply (US M2), in USD bn, 1910-2023
| Year | Gold Stock | yoy | Money Supply | yoy | Year | Gold Stock | yoy | Money Supply | yoy |
| 1910 | 35,626 | 2.0% | 1970 | 90,695 | 1.7% | 626.5 | 6.6% | ||
| 1911 | 36,325 | 2.0% | 1971 | 92,145 | 1.6% | 710.3 | 13.4% | ||
| 1912 | 37,030 | 1.9% | 1972 | 93,535 | 1.5% | 802.3 | 13.0% | ||
| 1913 | 37,724 | 1.9% | 1973 | 94,885 | 1.4% | 855.5 | 6.6% | ||
| 1914 | 38,387 | 1.8% | 26.0 | 1974 | 96,135 | 1.3% | 902.1 | 5.4% | |
| 1915 | 39,091 | 1.8% | 30.0 | 15.4% | 1975 | 97,335 | 1.2% | 1,016.2 | 12.6% |
| 1916 | 39,776 | 1.8% | 34.9 | 16.3% | 1976 | 98,545 | 1.2% | 1,152.0 | 13.4% |
| 1917 | 40,407 | 1.6% | 40.9 | 17.1% | 1977 | 99,755 | 1.2% | 1,270.3 | 10.3% |
| 1918 | 40,985 | 1.4% | 46.2 | 12.9% | 1978 | 100,965 | 1.2% | 1,366.0 | 7.5% |
| 1919 | 41,535 | 1.3% | 52.0 | 12.7% | 1979 | 102,175 | 1.2% | 1,473.7 | 7.9% |
| 1920 | 42,042 | 1.2% | 51.3 | -1.4% | 1980 | 103,395 | 1.2% | 1,599.8 | 8.6% |
| 1921 | 42,540 | 1.2% | 45.7 | -10.9% | 1981 | 104,675 | 1.2% | 1,755.5 | 9.7% |
| 1922 | 43,021 | 1.1% | 50.5 | 10.5% | 1982 | 106,015 | 1.3% | 1,905.9 | 8.6% |
| 1923 | 43,575 | 1.3% | 50.7 | 0.4% | 1983 | 107,415 | 1.3% | 2,123.5 | 11.4% |
| 1924 | 44,167 | 1.4% | 53.9 | 6.3% | 1984 | 108,875 | 1.4% | 2,306.4 | 8.6% |
| 1925 | 44,758 | 1.3% | 57.6 | 6.9% | 1985 | 110,405 | 1.4% | 2,492.1 | 8.1% |
| 1926 | 45,360 | 1.3% | 56.1 | -2.5% | 1986 | 112,015 | 1.5% | 2,728.0 | 9.5% |
| 1927 | 45,957 | 1.3% | 56.7 | 1.1% | 1987 | 113,675 | 1.5% | 2,826.4 | 3.6% |
| 1928 | 46,560 | 1.3% | 58.2 | 2.6% | 1988 | 115,545 | 1.6% | 2,988.2 | 5.7% |
| 1929 | 47,169 | 1.3% | 57.7 | -0.9% | 1989 | 117,555 | 1.7% | 3,152.5 | 5.5% |
| 1930 | 47,817 | 1.4% | 54.3 | -5.8% | 1990 | 119,735 | 1.9% | 3,271.8 | 3.8% |
| 1931 | 48,512 | 1.5% | 47.7 | -12.3% | 1991 | 121,895 | 1.8% | 3,372.2 | 3.1% |
| 1932 | 49,266 | 1.6% | 44.3 | -7.1% | 1992 | 124,155 | 1.9% | 3,424.7 | 1.6% |
| 1933 | 50,059 | 1.6% | 42.9 | -3.1% | 1993 | 126,435 | 1.8% | 3,474.5 | 1.5% |
| 1934 | 50,900 | 1.7% | 49.4 | 15.0% | 1994 | 128,695 | 1.8% | 3,486.4 | 0.3% |
| 1935 | 51,824 | 1.8% | 58.4 | 18.3% | 1995 | 130,925 | 1.7% | 3,629.5 | 4.1% |
| 1936 | 52,854 | 2.0% | 66.6 | 14.0% | 1996 | 133,215 | 1.7% | 3,818.6 | 5.2% |
| 1937 | 53,954 | 2.1% | 62.7 | -5.8% | 1997 | 135,665 | 1.8% | 4,032.9 | 5.6% |
| 1938 | 55,124 | 2.2% | 68.4 | 9.0% | 1998 | 138,165 | 1.8% | 4,375.2 | 8.5% |
| 1939 | 56,354 | 2.2% | 77.5 | 13.3% | 1999 | 140,735 | 1.9% | 4,638.0 | 6.0% |
| 1940 | 57,664 | 2.3% | 90.1 | 16.3% | 2000 | 143,325 | 1.8% | 4,925.0 | 6.2% |
| 1941 | 58,744 | 1.9% | 103.4 | 14.7% | 2001 | 145,925 | 1.8% | 5,433.8 | 10.3% |
| 1942 | 59,864 | 1.9% | 133.9 | 29.6% | 2002 | 148,475 | 1.7% | 5,772.0 | 6.2% |
| 1943 | 60,760 | 1.5% | 168.8 | 26.0% | 2003 | 151,015 | 1.7% | 6,067.3 | 5.1% |
| 1944 | 61,573 | 1.3% | 191.3 | 13.3% | 2004 | 153,435 | 1.6% | 6,418.3 | 5.8% |
| 1945 | 62,335 | 1.2% | 215.6 | 12.7% | 2005 | 155,905 | 1.6% | 6,681.9 | 4.1% |
| 1946 | 63,195 | 1.4% | 226.4 | 5.0% | 2006 | 158,275 | 1.5% | 7,071.6 | 5.8% |
| 1947 | 64,095 | 1.4% | 238.0 | 5.1% | 2007 | 160,625 | 1.5% | 7,471.6 | 5.7% |
| 1948 | 65,027 | 1.5% | 234.6 | -1.4% | 2008 | 162,925 | 1.4% | 8,192.1 | 9.6% |
| 1949 | 65,991 | 1.5% | 234.0 | -0.3% | 2009 | 165,415 | 1.5% | 8,496.0 | 3.7% |
| 1950 | 66,870 | 1.3% | 244.5 | 4.5% | 2010 | 168,246 | 1.7% | 8,801.8 | 3.6% |
| 1951 | 67,753 | 1.3% | 258.1 | 5.6% | 2011 | 171,145 | 1.7% | 9,660.1 | 9.8% |
| 1952 | 68,621 | 1.3% | 268.1 | 3.8% | 2012 | 174,057 | 1.7% | 10,459.7 | 8.3% |
| 1953 | 69,485 | 1.3% | 271.0 | 1.1% | 2013 | 177,196 | 1.8% | 11,035.0 | 5.5% |
| 1954 | 70,450 | 1.4% | 278.4 | 2.7% | 2014 | 180,571 | 1.9% | 11,684.9 | 5.9% |
| 1955 | 71,397 | 1.3% | 284.6 | 2.2% | 2015 | 183,945 | 1.9% | 12,346.8 | 5.7% |
| 1956 | 72,375 | 1.4% | 288.1 | 1.3% | 2016 | 187,498 | 1.9% | 13,213.4 | 7.0% |
| 1957 | 73,395 | 1.4% | 286.0 | -0.7% | 2017 | 191,048 | 1.9% | 13,857.9 | 4.9% |
| 1958 | 74,445 | 1.4% | 297.0 | 3.8% | 2018 | 194,693 | 1.9% | 14,362.7 | 3.6% |
| 1959 | 75,575 | 1.5% | 298.6 | 0.6% | 2019 | 198,295 | 1.9% | 15,320.7 | 6.7% |
| 1960 | 76,765 | 1.6% | 312.4 | 4.6% | 2020 | 201,738 | 1.7% | 19,114.6 | 24.8% |
| 1961 | 77,995 | 1.6% | 335.5 | 7.4% | 2021 | 205,309 | 1.8% | 21,546.6 | 12.7% |
| 1962 | 79,285 | 1.7% | 362.7 | 8.1% | 2022 | 208,921 | 1.8% | 21,346.3 | -0.9% |
| 1963 | 80,625 | 1.7% | 393.2 | 8.4% | 2023 | 212,582 | 1.8% | 20,827.2 | -2.4% |
| 1964 | 82,015 | 1.7% | 424.7 | 8.0% | |||||
| 1965 | 83,455 | 1.8% | 459.2 | 8.1% | |||||
| 1966 | 84,905 | 1.7% | 480.2 | 4.6% | |||||
| 1967 | 86,325 | 1.7% | 524.8 | 9.3% | |||||
| 1968 | 87,765 | 1.7% | 566.8 | 8.0% | |||||
| 1969 | 89,215 | 1.7% | 587.9 | 3.7% |
Annual gold production is relatively small
What does this mean in concrete terms? If mine production were to double – which is extremely unlikely – this would only mean an increase of 3.4% for the total stock of gold. This would still be a relatively insignificant inflation of the gold stock, especially compared to the current central bank inflation. If, on the other hand, production were to cease for a year, this would also have little impact on the total stock and pricing. If, on the other hand, a significant proportion of oil production were to be lost for a longer period of time, stocks would be depleted after a few weeks. Strong increases or decreases in production can therefore be absorbed much more easily.
We therefore assume that gold is not so valuable because it is so rare, but quite the opposite: gold is valued so highly because the annual production is so low in relation to the stock. This characteristic has been acquired over the centuries and can no longer change. This stability and security is a key prerequisite for creating trust. This clearly distinguishes gold as a monetary metal from other commodities and precious metals. Commodities are consumed, while gold is hoarded. This also explains why conventional supply/demand models can only be used to a limited extent on the gold market. Or as Robert Blumen once put it: “Contrary to the consumption model, the price of gold does clear the supply of recently mined gold against coin buyers; it clears all buyers against all sellers and holders. The amount of gold available at any price depends largely on the preferences of existing gold owners, because they own most of the gold.”[1]
For a commodity that is consumed, a rising deficit would clearly trigger higher prices until equilibrium is restored. Not so with a good that is hoarded. A simple consumption model therefore only works for goods that are consumed and whose annual production is high in relation to the stock (= low stock-to-flow ratio).
Current mining costs are insignificant for the gold price
This is why the production costs of gold play a subordinate role in pricing. They are primarily relevant for the performance of gold stocks. In our opinion, analyses that state that the gold price cannot fall below production costs are based on a fundamental fallacy. Although mining would be uneconomical for the majority of mine operators above a certain price, trading in gold that has already been mined would not come to a standstill. While mining therefore has little influence on the gold price, the reverse is not true. The gold price naturally has a considerable influence on mining and its profitability.[2]
There is no generally equal production cost rate for all mines – the costs depend on the characteristics of the mine and the reserves. Even the cost of producing individual ounces from the same mine can vary. The gold price in relation to labor costs and the cost price of capital goods determines whether a mine is profitable or not, and what gold can be profitably extracted from a mine. As the price of gold rises in relation to production costs, previously unprofitable reserves can become profitable to mine.
The demand side consists of investors, the jewelry industry, central banks and industry. However, this is actually only a fraction of the total demand. The majority of demand is so-called reservation demand. This term describes gold owners who do not want to sell gold at the current level. By not selling at the current price level, they are responsible for ensuring that the price remains at the same level.[3]
The decision not to sell gold at the current price level is therefore just as important as the decision to buy gold. The net effect on price discovery is the same. The supply of gold is therefore always high. At a price of USD 5,000, the supply of old gold would amount to a multiple of annual production. This also explains why the much-cited “gold deficit” is a myth and why there can be no shortage. Robert Blumen once formulated this aspect as follows: “Gold is an asset. Supply and demand should be understood in the same way that we understand the shares of a company. Every time shares change hands, the shares are demanded by a buyer and supplied by a seller. For each and every transaction, supply equals demand. Adding up all of the transactions that occur on a particular exchange, over the course of a month or a year, tells you absolutely nothing…If you said that buyers in China had bought 100 million shares of Microsoft but ‘no supplier could supply that many shares,’ nor was the company issuing enough new shares to meet the demand, you would readily see the error in that statement… Everyone understands that new shares only dilute the value of the existing shareholders, that it is not required for a company to issue new shares for the price to go up or down and that most trading of shares consists of existing shareholders selling to people who have dollars.”[4]
Just as increasing the money supply dilutes the purchasing power of the money in circulation and issuing new shares leads to a dilution of the old ones, an increase in the supply of gold should be seen as a dilution of the existing supply. An increase of 1% is absorbed by the market by the price falling by 1%, while the nominal supply remains the same.
With the exception of the past four years, there is a clear positive correlation between the gold price in US dollars and the expanding supply of recycled gold. The low volume of recycled gold in relation to the gold price over the past four years could indicate that market participants are becoming accustomed to the higher price level and will only sell at significantly higher price levels. It also appears that gold is gradually moving from shaky to firm hands.
Whenever someone sells, it means that the gold price has reached its reserve price. Thus, someone is selling to someone with an implicitly higher reservation price – which results from the fact that they are willing to buy at that price. This means that larger sales (for example by central banks) contribute to an improvement in the market structure.
Conclusion
The gold market should be seen as a holistic market. In our opinion, the distinction between annual new supply and total supply is incorrect and leads to false conclusions. All sources of supply are of equal value, as every ounce of gold available for sale is in competition with other ounces. It does not matter whether the gold was mined 3,000 years ago or 3 months ago or consists of recycled dental gold, for example. The current annual gold production of more than 3,600 tons is therefore relatively insignificant for pricing.
Annual gold production is also only subject to very minor fluctuations, in contrast to fiat money, whose annual rate of change fluctuates strongly. Over the past quarter of a century, M1 for the euro has fluctuated on a quarterly basis between just under -10% in Q3/2023 and +17% in Q4/2005, while M2 for the US dollar has gone from -4.1% in Q2/2023 to more than +25% in Q1/2021. Ludwig von Mises summarized these theoretical findings perfectly: “If a thing has to be used as a medium of exchange, public opinion must not believe that the quantity of this thing will increase beyond all bounds.”
[1] Blumen, Robert: “Does Gold Mining Matter?”, Mises Institute, August 14, 2009
[2] See Blumen, Robert: “Does Gold Mining Matter?”, Mises Institute, August 14, 2009
[3] See Blumen, Robert: „WSJ does not understand how the gold price is formed“, May 30, 2010
[4] Blumen, Robert: “Does Gold Mining Matter?”, Mises Institute, August 14, 2009
THE REAL MOVE IN GOLD & SILVER IS YET TO START
In this brief, 13-minute compilation of insights from 2023, VON GREYERZ, AG partner, Matthew Piepenburg, reminds us of prior warnings which are truer than ever (and playing out) today as the stock market totally divorces itself from the real (and recessionary) economy. There’s a reason gold is spiking, for despite a Fed-driven and hence entirely “Pavlovian” S&P, recessionary forces will force further currency debasement to monetize unsustainable debt levels. Looking purely at the recessionary forces of 2023, which Piepenburg bluntly unpacks with data rather than drama, the current disconnect between rising markets and a bleeding economy into 2024 should have all investors thinking carefully about what lies ahead, including an inflationary endgame which Piepenburg will unpack in subsequent video compilations.
For now, keep the economic facts discussed here clear in mind when positioning and protecting your wealth, and hence gold, in the currents to come.
THE REAL MOVE IN GOLD & SILVER IS YET TO START
The world’s best kept investment secret is GOLD.
- Gold has gone up 7.5X this century
- Gold Compound annual return since 2000 is 9.2%
- Dow Jones Compound annual return since 2000 is 7.7% incl. reinvested dividends
So why are only 0.6% of global financial assets in gold?
The simple answer is that most investors don’t understand gold because governments suppress the virtues of gold.
GOVERNMENTS WILL ALWAYS LIE TO THEIR PEOPLE
Has anyone ever heard a Western government tell their people that gold is the best protection against their government’s total mismanagement of the economy and their currency?
Has any government ever told their people that throughout history all governments, without fail, have destroyed the total value of the people’s money?
That includes every single currency in history since no currency has ever survived.
And have current governments told their people that since 1971, their currencies have declined by 97% to 99%?
So why don’t governments tell their people that in the next 50-100 years their currency will lose another 97-100%?
Obviously, no government would ever be elected if they told their people the truth that the economy and their money will continue to be mismanaged and destroyed like it has throughout history.
And why don’t governments study history where they could learn from their predecessors mistakes?
And why don’t journalists study the history of money and educate the people?
The answer is obvious, journalism is just government propaganda and there is not a serious investigative journalist around today.
INVESTMENT MANAGEMENT INDUSTRY IN DENIAL.
In addition, the whole investment management industry neither understands nor likes gold.
Studying and understanding money doesn’t serve their purpose. Better to create a mystique around a mediocre industry that on average underperforms the market.
A greedy and self-serving investment management industry is not interested in gold. Gold doesn’t allow them to churn commission which is important for their survival.
This whole industry could be abolished with most investments being held in index funds and physical gold. The net performance would most probably be superior to a very and inefficient industry.
DRIVERS FOR GOLD
In the 12 minute video extract from a Palisade Radio interview below, I discuss the drivers for gold.
In summary the important drivers discussed which will soon propel gold to much higher levels are:
- Global deficits & debts – US, Europe, China, Japan, Emerging markets
- War
- Social unrest
- Gold buying by BRICS countries
- Central bank gold purchases of gold due to move from Dollar reserve assets to Gold
GOLD IS THE BEST WEALTH PRESERVATION ASSET THROUGHOUT HISTORY
- Gold is not an investment. It is nature’s money and thus the only money which has survived in history.
- Governments and Central Banks are Gold’s best friend. Throughout history they have without fail destroyed the value of Fiat money whilst Gold has for thousands of years maintained its purchasing power.
- As I discuss in the interview, risk is today greater globally than any time in history.
- Physical Gold is the ultimate protection against such risk.
- Gold for WEALTH PRESERVATION purposes must be held in physical form with direct access by the investor.
- Gold must obviously be held outside a fractured financial system. No use holding your gold in the system that you are protecting against.
- NEVER, EVER hold gold in paper form or ETFs.
- Gold must be held in a safe jurisdiction outside your country of residence and especially outside the US, Canada and the EU.
- Gold and Silver are not just for the wealthy. You can buy 1 gram for $70 or one ounce of silver for $25.
- With major bubbles in virtually all asset classes including stocks, bonds and property, the allocation to physical gold and some silver should be at least 25% of your financial assets and potentially much more.
NEVER worry about the gold price. Governments will continue to devalue your fiat money and thus revalue gold as they have throughout history.
THE REAL MOVE IN GOLD & SILVER IS YET TO START
In this fact-packed, 30-minute conversation, VON GREYERZ partner, Matthew Piepenburg, joins Jesse Day of Commodity Culture to make sense of the growing list of dislocations in debt, currency and financial markets, all of which serve as longer-term tailwinds for gold.
Piepenburg begins with a blunt analysis of the broad market, drawing from his own prior experiences on Wall Street in general and within the hedge fund space in particular. Taking both sides of the S&P bull and bear case, Piepenburg concludes, with evidence, that we are in fact seeing a classic “bubble” in equities. Toward this end, he explains how bubbles rise on net-income expansions and then pop on net-income contractions. The current S&P, which is comically narrow and what he describes as little more than a veritable “tech ETF,” offers far greater risk today than in prior bubbles (2001, 2008). This is because we are now seeing an equity melt-up in the backdrop of technical recessions from Germany to China (and ignored in the US…). In short, the timing, and irony, of a Fed-driven bubble in the backdrop of record-high global debt and recessionary trends could not be worse. Piepenburg then provides certain warnings and insights for those chasing the current tops.
Naturally, the core of the conversation turns to gold matters, which equally involves currency matters. In particular, Piepenburg offers his evolving views on de-dollarization themes/realities, but does not foresee a gold-backed BRICS currency. Instead, and equally bullish for gold, he sees more and more nations trading outside of the USD and/or net-settling trades in gold. The evidence of this growing trend is now openly undeniable, and he makes a clear case of this evidence, point by point, event by event—including dramatically important changes in the USD oil trade, which he addresses in detail.
Silver, Piepenburg quotes Egon von Greyerz, is “not for widows and orphans,” but is coiled for an inevitable spring forward based on the hard math of supply constraints and radical (one-way) physical silver deliveries out of the NY and London exchanges.
The conversation further includes key insights on recessionary, currency and inflation forces, all of which foretell a mathematically inevitable rise in the gold price. Piepenburg closes by reminding listeners to not only understand why one should own gold, but as importantly, HOW one should own gold, a theme which VON GREYERZ, AG (and Egon von Greyerz himself) has understood since its inception.
THE REAL MOVE IN GOLD & SILVER IS YET TO START
As is historically typical of all corrupted and objectively bankrupt nations, the truth is often as hard to find as an honest man in parliament.
Thus, if you want to see what’s most true, and embarrassing (and directly linked) to desperately cornered power-brokers increasingly enamored by the centralizing marriage of corporate influence and government opportunists (currently masquerading as “democracy”), the best evidence of genuine reality often lies in what is deliberately omitted from the headlines and public discussion.
Stated otherwise, the devil doesn’t just lie in the details, it lies in what is deliberately ignored, omitted or censored.
As any serious devotee of history (now increasingly cancelled as “elitist”) already knows, there’s no greater power than the power to control the two key levers of society, namely: 1) information and 2) money.
Unfortunately, even in the land of the free, neither of these forces (from genuine capitalism to the fourth estate) serve its deliberately “tribalized” citizenry. Our so-called free press (aka “legacy media”) is anything but free, and our “independent” Federal Reserve is anything but Federal, a reserve or independent.
The ironies just abound.
Between the corporate media and the central bank, it’s fairly clear that both of these time-honored institutions are now openly in bed with big government.
This is not fable, but fact. It’s also ominous.
How Information is Controlled
Note, for example, how the obvious blunders of the “safe and effective” COVID policies/failures of late (from hysterical and global mandates, lab-leak denials, and excess-death math to the global gaslighting of the un-vaxed) have been curiously absent from the headlines or public debate, when just over a year ago this “crisis” was the center of all our lives.
Attempts by the French legislature were even made to fine or jail those criticizing the vaccine. It seems, for some, at least, that Liberté, Égalité, Fraternité has become a convenient phrase rather than guiding ideal. C’est la vie…
More, however, can be said of the strangely silent headlines on the blatant (and finally confirmed) illegality of Trudeau’s invoking of emergency powers to criminalize truckers’ collective expression of free speech and dissent in Canada, or the demonizing of veterans who question the neocon’s US proxy war in the Ukraine as “unpatriotic” or a threat to “national security.”
In short, if you want to see the truth of what scares the power-brokers whose policies defy the open common sense of the common man (which Walt Whitman described as the true spirit of any nation), just look at what those clinging to power deny, hide from, cancel, censor, confuse or punish.
Or to paraphrase Shakespeare, they “doth protest too much,” for they know they are in the wrong.
How Money is Controlled
Turning from the centralization of information toward the centralization of money, the template is no different.
Obfuscation, devilish little details and outright absence of discussion and headlines are where you find the darker truths behind our entirely rigged-to-fail financial system, which as we’ve shouted from the rooftops with facts rather than fear, is little more than a modern feudalism of insider lords and public serfs.
As we’ve warned for years, solving a debt crisis with more debt, which is then paid for with money mouse-clicked out of thin air, is not policy—it’s fantasy.
We’ve also warned that at some point this fantasy (and debt addiction) will lead to not only more lies, more wars and more centralization by the state (as well as a pretextfor dystopian CBDC), but to an inflationary QE endgame/hangover of currency destruction interrupted by a conveniently deflationary (and openly denied) recession.
This is because a government $34T (and counting) out of debt control will have no choice but to take full control over our markets and money via capital controls, yield curve controls and more currency-killing QE to provide fake liquidity to a fake (Fed-driven/deficit-driven) market and economy.
Memories Are Short, Headlines Are Empty
Remember when Bernanke, for example, said QE would be “temporary”? What followed was QE 2,3,4, Operation Twist and then unlimited QE in 2020.
Remember when he also said such magical money would have no impact on the currency, which is the same thing Nixon said when he decoupled from gold in 1971?
What followed was a 98% decline in the USD’s purchasing power when measured against a milligram of gold.
And now, with Powell (who also said inflation was “transitory”) still toe-dipping into QT and hawkish rates, he seems to think no more QE will be needed, and that even the rate cuts he promised months backed are now being back-stepped.
Why?
Because Powell, like all political figures (and the FED IS POLITICAL) is pathologically incapable of admitting error or offering transparency or accountability for the debt hole his Fed has dug for us since its creepy inception in 1913.
After his “higher-for-longer” fight against inflation (a ruse to re-load his rate gun for the next recession) knee-capped the middle class, regional banks, and small businesses in an economy that is witnessing the highest level of corporate bankruptcies and layoffs in over a decade, Powell is still relying on words rather than math.
In this way, he has tempted an appallingly narrow S&P (which is nothing more than a tech ETF led by five names) to all time highs on just the suggestion (rather than act) of rate cuts.
But as I’ve argued elsewhere, this S&P bubble couldn’t come at a worse time nor in a worse national and global setting.
More Currency-Killing QE Will Come
Despite (and frankly, because of) all this embarrassing (and ignored) disfunction, the inflationary QE will come.
In fact, it has been hiding in plain sight.
Five times in the last four years, the two-heads (Yellen and Powell) of the two-headed financial snake in DC have been quietly providing trillions in back-door QE in various forms yet completely off the public headline/radar.
That is, via emptying of the Treasury General Account, issuing unloved IOUs from different extremes of the yield curve and sucking liquidity from the Reverse Repo Markets, DC has managed to buy more fantasy and time from “back-door” sources of liquidity which are now tapping out.
But math, as well looking beyond the headlines, teaches us that front-door (i.e., direct) QE is only a matter of time—i.e., just one popping and deflationary S&P bubble away.
For now, of course, Powell can’t say the quiet part out loud, and the vast majority of children playing within our Congress can’t even count out it loud.
How Dumb is the CBO?
The Congressional Budget Office (CBO), for example, has already projected another $20T in US Federal Debt to be issued in the next 10 years.
If this number wasn’t so mind-numbingly shocking enough (yet largely ignored from the WSJ or NYT), what is even more comical (and mind-numbing) is that the same CBO also foresees NO recession in that 10-year projection.
Furthermore, the CBO is assuming that 10Y yields (i.e., interest rates) will be 40 basis points lower than they are today.
Wow.
The level of dishonesty, denial and/or outright stupidity in such a projection literally defies belief and hard reality.
Why?
First, the CBO is ignoring the recession we are already in.
Secondly, the only way for yields on the US 10Y to be lower than they are today is if someone (or some “thing”) actually buys Uncle Sam’s IOUs. (Yields move inversely to bond demand.)
Yet based on not only our last report on the most recent UST auction, and based far more importantly on the unspoken reality that global central banks have been net-sellers rather than buyers of USTs since 2014, one has to wonder from where those mathematical wonder kids at the CBO expect that bond demand to come?
The honest answer, of course, is that there are not enough natural buyers of our unloved IOUs.
This means the actual buying will come from a mouse-clicker at the Eccles Building, where zeros can be added to a balance sheet far easier than say…actual GDP.
Equally clear, is the fact that the trillions of such mouse-clicked dollars are fake dollars, and despite the ongoing debates between “base money” and “reserve notes,” QE IS inherently inflationary.
Powell, for all his faults, knows this.
But his political position (and hence proclivities) means he will continue to well… lie about the inevitability of more QE, more inflation and more currency debasement, which as we (and history) have also warned for years, is THE endgame.
New, Clever Little Lies and More Time-Buying at Your Expense
In the interim, the Fed and its sister little devil, the US Treasury Department, will come up with clever tricks to tell the surface truth while substantively (and simultaneously) lying.
In short, politics 101.
They do this via absolute confusion and brain-numbing details, acronyms and data hiding—i.e. “smoke and mirrors.”
For example, recently, the magicians in DC (namely, the ISDA, or “International Swaps & Derivatives Association) have asked the FED, the FDIC and the OCC (the Office of the Comptroller of the Currency) to reinstitute the UST exclusion for Supplementary Leverage Ratios (SLRs) at Federal Reserve Banks.
Most of you, of course, are saying: “What in the he_ _ does that mean?”
Well, that’s the entire point: You’re not supposed to understand, and you’re not supposed to notice.
Like all other pre-QE and current “backdoor QE” tricks, DC doesn’t want to show its bad poker hand.
That is, it doesn’t want you to know how broke(n) our dollar thirsty (i.e., debt-soaked) nation truly is.
In simple English, by excluding SLRs from calculations at the Fed banks (which was last done when markets tanked in April of 2020), banks are allowed to buy USTs with no reserve requirements (which essentially allows for unlimited leverage).
Or in even simpler English, this is just QE without the Fed having to say the “QE” part out loud.
Shocker?
Hardly. Just more words replacing bad math, which in my opinion, is the perfect description of the current financial cycle (or fourth turning…)
Takeaways?
Given that extreme liquidity, as well as extreme leverage, is THE trigger for extreme debt and then extreme disaster in markets and economies (a theme repeated from David Hume to von Mises, or Reinhart & Rogoff to Jeremy Grantham), those investors playing the long-game (rather than a Taylor Swift S&P) are thinking preparation not FOMO.
Rather than chase tops, the smart money is looking at assets that cannot be “popped” when all that is rosy today turns to blood in the streets tomorrow.
Currencies–for all the myriad reasons discussed elsewhere, from De-dollarization to central bank debasement and petrodollar divergence–will be hit even harder, and yes, the USD too.
This explains the breakout in anti-fiat assets like BTC and gold.
We are not going to compare “digital” gold and real gold here, but have long argued that they are not the same assets, stores of value or mediums of exchange. Nor are we here to critique fans of the former to highlight investors of the latter.
I love gold. This doesn’t mean I hate BTC. But there’s a difference.
What we do know, and can say, however, is that the world’s central banks are stacking physical gold at unprecedented levels and that the COMEX and London exchanges are seeing historical (and one-way) out-flows from these exchanges for the simple reason that the world wants gold– a tier-1 asset—far more than it wants a UST.
In short, seismic shifts are not coming, they are already happening to the currencies of distrusted and debt-heavy sovereigns.
Many, however, will still try to understand gold’s price moves in connection with (i.e., as a “correlation” to) Fed policies as to rates (up or down), bond yields (up or down), the DXY/USD (up or down) or CPI inflation (up or down).
What we are seeing however, is that gold breaks away from all standard “correlations” when nations tip toward chaos, which is what always follows a debt crisis.
The fact that Germany, the UK, Japan, South Korea and China are technically in recession, while America denies recession at home, suggests to us (gee whiz) that such chaos (financial, military, social, currency and political) is already upon us.
And as trust falls in such a backdrop of objectively neutered currencies, gold simply rises, because it’s real rather than paper money.
The BIS knows this, the world’s central banks know this. Wall Street legends know this.
And yes, gold just reached all time highs in USD terms. We all know this.
But there is much, much, more to come for gold, and for no other reason, than that there is sadly much, much more disfunction ahead in the financially upside-down (and debt-trapped) world which our leaders have handed us.