Only time will tell whether gold has established a long term bottom and which factors have been driving the trend change. But, from our perspective, we believe that all of the above are increasingly driving gold’s price higher, a trend which will only intensify.
Tag: jim rickards
In this short but fascinating interview on Bloomberg TV, Jim Rickards summarizes today’s controversial gold market situation in just a couple of minutes. He says the gold market is technically very bullish, but basically one needs to understand all aspects of the market (not only the declining price). In particular, the key of gold’s bullish situation is related to the physical market which is right now being redefined by China.
This article presents a first insight in the sequel to Currency Wars, the best selling book written by Jim Rickards. The new book is titled “The Death of Money, The Coming Collapse of the International Monetary System.” The book confirms the predictions made in “Currency Wars” and goes deeper in the matter by explaing how the international monetary system might collapse and how the new monetary system could look like.
This is an excellent interview with Jim Rickards. He explains that we are in a depression currently. The answers to that problem from the US government and central bank will likely force them to impose monetary discipline through the return to a gold standard. The longer the dollar based monetary system is suppressed, the more likely that market forces will induce a dollar collapse. This piece provides deep insights in a complex matter, brought in an easy to understand way.
In a major US dollar devaluation crisis, which would occur if the US would fail to raise the debt ceiling on Thursday October 17th, there should be a significant impact on the gold price. Jim Rickards wrote about this in his bookin which he envisages a series of ‘black swan’ events that trigger a loss of confidence in the US dollar precipitating a rush to get out of the greenback. In such a scenario, the market would question the Fed’s staying power. A dollar collapse would ensue and gold could double in price overnight.
As all central banks are printing money, their value all go down simultaneously. In such an environment, gold is a good solution. This is the rationale to hold some money in the form of [physical] gold. Cash is not necessary the best investment.
Is it too late to change direction and avoid a collapse? Mr. Rickards believes it is not; we can still avoid it. The key point, however, is that policy makers are not showing signs of understanding the seriousness of the situation and their policy outcomes. They neither show signs of reversing course and solving the underlying structural issues.
With the whole world tied to the printing press, inflation is just a matter of time, says Jim Rickards. A greater danger is a widespread collapse in confidence in paper money. That will be the single catalyst driving gold to unprecedented levels. The gold price that is needed to reflect the extended monetary base is approximately $7,000.
We have two things going on at once right now. You have deflation which is perfectly natural and what you would expect in a depression. Against that, we have inflation from the Fed money printing. In rough numbers we might have 4% deflation and 5% inflation at the same time which net out to about 1% inflation in the CPI. That is not a stable series; that is actually two forces pushing against each other.
On the question where gold will trade for the rest of this year, Rickards is convinced that gold will go sideways this year and that it will go up next year. He also believes inflation is coming with a lag. On the question what deflation means for gold, Rickards answers that gold traditionally performs well amid deflation, as well as inflation.
What will the monetary system look like once a collapse occurs, which Rickards expects in the coming 3 to 5 year time frame. In his view, which he describes in great detail in his book Currency Wars, there are four possibilities: multiple reserve currencies, SDR’s, a gold standard, chaos.
Gold is 25% up in the last 3 months, but it’s up in Yen, not dollars. This is where currency wars and gold dynamics come together. Gold is always rallying somewhere; right now it is rallying in Yen. Meantime you can always make money in gold, as it is always 5 o’clock somewhere.
The red line through all of this? The price trend of gold does not reflect the real financial and monetary risks. But what to make out of this disconnect? Honestly, it is difficult to say. We are not alone apparently. Some of the sources we really trust consistently report the same disconnect between “reality” and price evolutions.
Bloomberg claimed that Russia has been a bigger buyer of gold over the past decade than China – by a full 25%. Based on data about gold imports through Hong Kong and the fact that Chinese production doesn’t leave the country, it seemed to me that this could not be right. The Chinese central bank holds an official 1,054 tonnes of gold in its reserves. Bloomberg states that China has added somewhere around 425 tonnes over the past decade.