Authored by James Rickards via DailyReckoning.com,
The world has changed radically in recent years. We’ve had the worst pandemic since 1918, and the third worst in world history. We’ve had a global supply chain breakdown. Inflation has been the worst since the early 1980s, despite the fact that it’s come down since peaking last June.
Meanwhile, Europe is experiencing its worst war since the end of World War II.
That kinetic war in Ukraine has been accompanied by a financial and economic war between the U.S., the U.K., the EU and Russia that involves extreme financial sanctions, including seizing the central bank reserves of the world’s 11th-largest economy.
That financial war and accompanying sanctions disrupted supply chains on top of the disruptions that were already present. They still persist.
And the world’s second-largest economy, China, locked down 50 million people in Shanghai and Beijing for months in a hopeless and misguided effort to suppress COVID. (China has finally seemed to learn that the virus goes where it wants). Meanwhile, tensions in the Taiwan Strait are high, with a lot of talk about a potential Chinese invasion or blockade of Taiwan. The list goes on.
If gold is the ultimate safe haven for investors and the world has been dangerously unsafe, then the price of gold must have been skyrocketing, right?
That’s not the case. Today gold is about $2,030 per ounce after gaining over $200 in the last month (that price fluctuates daily and intraday). That’s still lower than the $2,069 all-time high of Aug. 6, 2020.
The bottom line is, gold is lower today than it was three years ago. There have been some spills and thrills along the way including two peaks over $2,000 and several smashes down into the $1,680 range, but always followed by a reversion to a persistent central tendency that hasn’t moved much at all.
So, we’re back to the original question. With inflation, shortages, and war all around, why is gold not surging past $3,000 per ounce and making its way to $4,000, $5,000 and beyond?
Supply/demand conditions favor higher gold prices. Global production of gold has remained fairly constant for the past seven years. Over the same seven-year period, during a period when global output was flat, central banks increased their official holdings by over 6%.
China has added over 1,400 metric tonnes in the past thirteen years (that’s the official number; unofficially they probably own far more). Russia has acquired over 1,500 metric tonnes over that same period.
Other large buyers have included Poland, Turkey, Iran, Kazakhstan, Japan, Vietnam and Mexico. Central banks in the Visegard Group (Czech Republic, Hungary, Poland and Slovakia) have also bought gold.
What’s curious is that individual investors in the U.S. still seem indifferent to gold as a monetary asset. In theory, central banks are the most knowledgeable about the real condition of the global monetary system. If central banks are buying all the gold they can with hard currency (dollars or euros), it’s not clear what retail investors are waiting for.
Of course, central bank holdings are only about 17.5% of total above-ground gold and there is far more demand from bullion investors and for jewelry (a form of wearable wealth). Still, central banks are arguably the most knowledgeable market participants; and their steady increases in gold holdings is meaningful.
Interest rates also play a supporting role. Many of the directional moves in gold prices over the past three years have been tied to interest rate moves. The correlation is not perfect, but it is strong.
The rally in gold prices in late 2020 was tied to a fall in interest rates (yield-to-maturity) on the 10-year U.S. Treasury note from 1.930% on December 19, 2019 to 0.508% on July 31, 2020.
Similarly, the fall in gold prices after February 2021 was tied to an increase in interest rates on the 10-year Treasury note from 1.039% on January 2, 2021 to 3.130% on May 2, 2022. Rates are 3.44% as of today.
But I believe that interest rates on the 10-year Treasury note will fall again and will continue to fall as global growth weakens. That’s good news for gold investors. Short-term rates have gone up because of Fed policy, but long-term rates will go down because investors see that the Fed will cause a recession. That correlates with higher gold prices.
While market supply/demand conditions are favorable for gold, and the overall interest rate environment is also favorable for gold, neither has seemed to have the power needed to push gold sustainably past $2,000.
What’s the problem?
The real headwind for gold and the main reason gold has struggled to gain traction for the past three years has been the strong dollar.
After all, the dollar price of gold is really just the inverse of the strength of the dollar. A weaker dollar means a higher dollar price for gold. A stronger dollar means a lower dollar price for gold.
It may seem paradoxical to imagine a strong dollar in the midst of all the inflation we’ve been seeing. But that’s the case.
What’s extraordinary over the past three years isn’t that gold hasn’t soared; it’s that gold has held its own in the face of a persistently strong dollar. So that leads to the next question:
What’s been behind the strong dollar and what could cause the dollar to suddenly weaken and send gold prices into the stratosphere?
The strong dollar has been driven by a demand for dollar-denominated collateral, mostly U.S. Treasury bills, needed as collateral to support leverage on bank balance sheets and in hedge fund derivatives positions.
That high-quality collateral has been in short supply. As banks scramble for scarce collateral, they need dollars to pay for the Treasury bills. That fuels dollar demand.
The scramble for collateral also speaks to fears of a banking crisis in the wake of SVB’s collapse, weaker economic growth, fears of default, decreasing creditworthiness of borrowers and fear of a global liquidity crisis. We’re not there yet, but we’re getting close with no relief in sight.
As weak growth turns into a global recession, a new financial panic will be on the horizon. At that point, the dollar itself may cease to be a safe haven, especially given the aggressive use of sanctions by the U.S. and the desire of major economies such as China, Russia, Turkey, and India to avoid the U.S. dollar system if possible.
When this panic hits and the dollar is deemed no longer reliable, the world will turn to gold.
Frustration with the sideways movement of gold prices is understandable. But behind the curtain, a new liquidity crisis is brewing.
Investors should consider today’s prices a gift and perhaps a last chance to acquire gold at these prices before the real safe haven race begins.
Even above $2,000, gold is so cheap right now, it’s practically a steal.
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Rickards conveniently left out the fiat paper gold that artificially boosts supply.
Stopped reading at “worst pandemic since 1918″…
Rictards is a CIA analyst.
That should tell you everything about whose side he’s on…cuz it ain’t ours!!!
@SW
Spot on. This clown lost his credibility 10 years ago.
The “explosion” will start as a trickle, building to a stream and culminating in a Niagara Falls level event…meaning flowing uncontrollably forever.
I have SEEN IT.
Dude, when is gold going to explode? My prediction…when they want it to. Until then, I believe they can do whatever they want with/to the price of gold.
When it becomes known as Unobtainium.
BL,
Jim Sinclair (Mr. Gold) was interviewed by Greg Hunter a couple of years ago and what he said still stands…he reinforced (we know more know – because it was intentional) if not for the exact timing of the Pandemic the entire international economic system was going down with the 9/19 BANK REPO SYSTEM IMPLOSION.
My opinion: Of course they had to shut down the demand for currency through the Lockdowns after the REPO CRASH…and the death jabs was a bonus to further suppress demand. Trump oversaw the FED takeover of the Treasury creating and pumping in the trillions of MOUR FIAT into the Banks/currency supply (ICE -9 has posted the most accurate details on that – ICE if you see this put your link back up I would like to read it again!) that bailed the Banksters out keeping the system afloat. The Banksters were desperate to avoid the blame of the crash and the Covid plan was long waiting in the wings…but they had to rush the PLANDEMIC out when the REPO MARKET suddenly went down. However they thought it would be much more deadly than it was…and HCQ, Ivermectin, Front Line Doctors RFK Jr. etc. got in the way.
Sinclair (who has one of the most accurate Gold predictive records of anyone alive) thinks the first phase of the reset will take Gold to $3,500 an ounce and Silver will pass it in ratio and speed to $200 an ounce, and both will quickly become Unobtainium. (As you said above).
Then there will be a second reset and Gold will climb to a level set by the BRICS starting at around $10,000 an ounce, than rise to new heights from there possibly up to $50,000 an ounce…and stay there. Silver will pass it in ratio but will pull back at some time with it known historical volatility…but everyone holding physical PMs will do well and be not just protected…but many will be on the receiving end of the greatest wealth transfer in history.
It’s a hard interview to listen to as it is poor quality and Sinclair is getting long in the tooth, plus his frigg’in dog is barking in the background.
Here is the link with a lot MOUR!: (Ok, I chopped some wood for ya buddy!)
https://usawatchdog.com/page/4/
WHY YOU SHOULD OWN PRECIOUS METALS? READ THIS:
“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.
This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the “hidden” confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.”
Who do you think this was written by? If you guessed former Fed Chief Alan Greenspan, you would be correct. It is titled “Gold and Economic Freedom,” and it was originally published in 1966. (Click above to read the entire Greenspan article.) After reading this, it is hard to believe he was the Chairman of the Federal Reserve for nearly 20 years. Gold is the antithesis of the Federal Reserve Note.
Greenspan’s article is the time tested reason for owning gold. For more current reasons, look no further than “The Seven “Ds” of the Developing Disaster,” written by gold expert Alf Field. In short:
o Deficits
o Dollar
o Devaluations
o Debt
o Demographics
o Derivatives (this is the big one)
o Devolution
The above are the reasons why Field says gold and silver are bound to rise over the long term. (Click here to read the complete article from Field. in the link above).
“Worst pandemic since 1918” is a really stupid statement about a flu no more deadly than any other…Worst vaccine ever would make sense, but Rickards is being PC..
Right. There’s a Fauci FOIA email available on highwire from–I think–april 2020 where he states that they already figured out the IFR to be somewhere between a standard flu season and the bad flu season of 1957. This is public information. Cov was not close to 1918 by any measure.
So personally I don’t care about his gold analysis because he opened up with a demonstration of his lack of critical thinking. Major red flag.
Uh, so riddle me this: Dollar weakens. Buy gold. Amerika goes full Weimar. Mordor-On-The-Potomac sees gold prices skyrocket. The great unwashed does not own gold. Mordor-On-The-Potomac makes it a federal crime to trade, barter, buy, or sell gold or gold instruments(or junk silver coins). What do we do now, coach? Go to the John Galt Shenandoah website and read his blogvel: THE DAY THE DOLLAR DIED. Food for thought. Plan accordingly. Bleib ubrig.
Black market, Dweez. Cuz by then everyone will know the government’s a pus-filled zit on a whore’s ass.
The Leviathan may, in some areas, be exactly as you described. However, They employ legions of mercenary gunsels with badges, guns, and/or uniforms who have no problem kicking in my front door and eliminating me and mine, then helping themselves to whatever we have/had. I have met plenty of them when I used to work at a shooting range. They have eyes like sharks.
Just look at Venezuela. The government fat cats did not suffer a hangnail. The police and army had plenty of food, TP and funny money to spend. The rest of the folks were killing their dogs and cats to get meat and scavenging everything. If one is going to resist this future nightmare, one has to plan way ahead of the curve. I urge you to read the Blogvel I referenced above, or any of the PATRIOTS series by James Wesley Rawles. Bleib ubrig.
is easily explained by the volcano Model…
Pressure builds inexorably, The first sign is an early oozing…akin to premature ejaculation. But instead of an ending, we’ll see a continuing and ever explosive ejaculation, running from flowing rivulets to involuntary explosions of pyroclastic convulsions of orgasmic intensity overwhelming all voyeurs credulity.
The true effects can only be measured with certainty AFTER the fact.
I ask you, gentle readers…do you know ANYONE who wants to see THAT shit?
I don’t…but here it comes, nevertheless.
He admits in his infomercials that he has been a advisor to swamp , spooks , etc. for years.
Now , listen to my looooong sales pitch , and for a fee , I will ” reveal ” the big secret……..
Operators standing by.
I stopped reading after “worst pandemic since 1918and 3rd worst in history”. Sorry but he’s not worth my time; the rest of you however ARE. I went right to the TBP faithful’s comments 😊👍 There’s the real meat.
First off,I own gold and silver(a fair amount) and I do not want it to rise dramatically in price though feel it will,means it is coming apart quickly.
As always,before metals have food/med/security/ttols extra clothes,the list goes on and then all this covered(including a few hundred Bic lighters)you still have monies…….,buy metals.
One can still even if just beginning prep,so…..,get on it and folks here as always will answer ?’s from folks new to the game.
And as always,Prepper Cat is with you.