How Gold Gets to US$10,000 per Ounce

Special Note from the Publisher: Hi, Kris here. You’ll notice that Money Weekend is a little different this week. That’s because something big and rather unusual is happening this week — starting today.

We have obtained the publishing rights to a Special Australian Edition of Jim Rickards’ epic latest book, The New Case for Gold.

I don’t mean ‘epic’ in terms of size. It comes in at a fairly compact 182 pages. I mean epic in terms of the scale of what it covers…its predictions for the monetary system in 2017…and its portfolio preparation strategies.

As you can see here, these are strategies Jim Rickards himself — as well as a roster of in-the-know elites — are enacting with their own money right now.

As David A Stockman, Former OMB Director and author of The Great Deformation writes: ‘We can’t trust the Federal Reserve to do the honest work that Jim Rickards has done in writing this book. When the monetary system finally fails, there will be a flight to the only money that’s left in the system — and that will be gold. Essential reading.’ 

In short: The new gold rush is on. If you don’t act soon, you’ll be left behind.

Everything you need to know is contained in Jim’s new book, The New Case for Gold.

I believe so firmly in Jim’s new thesis…and that the 23% rise in gold prices we’ve seen so far in 2016 is just the beginning…that I want you to read this new book ASAP. So much so, I’ve just spent $123,410 of Port Phillip Publishing funds to have 7,000 copies printed in the UK and shipped to our fulfilment house here in Australia.

First come, first served. If you want one, click here. I’ll even cover the cost of mailing this book to your door.

I’m reliably informed from Sam, our long-suffering accounting manager, that it’s going to cost us $17.63 to print and ship each book.

I don’t care. This information needs to get into your hands.

But, as such, this is an offer that won’t be around for long.

To find out more, click here.

Below, Jim gives a brief summary how far he sees gold’s next ‘super-spike’ reaching…and why…

How Gold Gets to US$10,000 per Ounce

Is gold a commodity, an investment, or money?

The answer is…

Gold is a chameleon. It changes in response to the environment.

At times, gold behaves like a commodity. The gold price tracks the ups and downs of commodity indices.

At other times, gold is viewed as a safe haven investment. It competes with stocks and bonds for investor attention.

And on occasion, gold assumes its role as the most stable long term form of money the world has ever known.

A real chameleon changes colour based on the background on which it rests. When sitting on a dark green leaf, the chameleon appears dark green to hide from predators. When the chameleon hops from the leaf to a tree trunk, it will change from green to brown to maintain its defences.

Gold also changes its nature depending on the background.

Golden chameleon

Right now, gold is behaving more like money than a commodity or investment. It is competing with central bank fiat money for asset allocations by global investors.

That’s a big deal because it shows that citizens around the world are starting to lose confidence in other forms of money, such as dollars, yuan, yen, euros, and sterling.

This is great news for those with price exposure to gold. The price of gold in many currencies is going up as confidence in those other currencies goes down. Confidence in currencies is dropping because investors are losing confidence in the central banks that print them.

For the first time since 2008, it looks like central banks are losing control of the global financial system. Gold does not have a central bank. Gold always inspires confidence because it is scarce, tested by time, and has no credit risk.

Gold’s role as money is difficult for investors to grasp. One criticism of gold is that is has no yield. Gold has no yield because money has no yield. In order to get yield, you have to take risk.

Bank deposits, and so-called money market funds, have yield, but they are not money. A bank deposit is subject to default by the bank, as we saw recently in Greece and Cyprus. A money market fund is subject to collapse of the fund itself, as we saw in 2008.

Gold does not have these risks.

Lost confidence in fiat money starts slowly, but then builds rapidly to a crescendo. The end result is panic buying of gold and a price super spike.

We saw this behaviour in the late 1970s. Gold moved from $35 per ounce in August 1971 to $800 per ounce in January 1980.

That’s a 2,200% gain in less than nine years.

A ‘super spike’ in gold

We may be looking at the early stages of a similar super spike that could take gold to $10,000 per ounce or higher. When that happens, there will be one important difference between the new super spike and what happened in 1980.

Back then, you could buy gold at $100, $200, or $500 per ounce and enjoy the ride. In the new super spike, you may not be able to get any gold at all. You’ll be watching the price go up on TV, but you’ll be unable to buy any for yourself.

Gold will be in such short supply that only the central banks, giant hedge funds, and billionaires will be able to get their hands on any. The mint, and your local dealer, will be sold out. That physical scarcity will make the price super spike even more extreme than in 1980.

The time to buy gold is now, before the price spikes and before supplies dry up.

What signs do we see that gold is now behaving like money?

For one thing, gold price action has diverged from the price action of other commodities. This divergence first appeared in late 2014 but has become more pronounced in recent months.

Gold has been edging up this year. At the time of writing, COMEX gold trades around US$1,340. But gold observers know that gold measured in dollars is still down significantly from its all-time high in 2011. COMEX gold peaked at $1,876 per ounce on 2 September, 2011. And traded as low as $1,056 per ounce on 27 November, 2015. That’s a 44% decline in just over four years. Yet in the same time period, broad-based commodities indices fell even more. One major commodities index fell 53%.

The contrast between the behaviour of gold and commodities is even more extreme when we narrow the time period. From 20 June 20, 2014 to 15 January, 2016, the broad-based commodity index fell 63%, while gold fell only 17%. The collapse in commodity prices was almost four times greater than the decline in gold prices.

From mid-January to mid-February 2016, gold rallied 14%, while commodities languished near five-year lows.

Source: Bloomberg; Bonner and Partners
Click to enlarge

Source: Bloomberg; Bonner and Partners
Click to enlarge

The monetary system is going wobbly

Right now, investors around the world are losing confidence in the Chinese yuan, the Saudi riyal, the South African rand, the Russian ruble, and a long list of other emerging market currencies. Investor preferences are shifting toward gold. This accounts for gold’s outperformance of the rest of the commodity complex when measured in dollars.

What is interesting is that, when the price of gold is measured not in dollars but in rubles, yuan, or riyals, the percentage price increase in gold increases as currencies decline against the dollar.

When you understand that gold is money, and competes with other forms of money in a jumble of cross rates with no anchor, you’ll know why the monetary system is going wobbly.

It’s important to take off your dollar blinders to see that the dollar is just one form of money. And not necessarily the best for all investors in all circumstances. Gold is a strong competitor in the horse race among various forms of money.

Normally, I recommend a 10% allocation of investible assets to physical gold for your permanent portfolio. But when short term trading opportunities arise, certain gold trades, such as exchange traded funds (ETFs) are a great way to get dollar price exposure to gold, and to book 100% or more profits.

This chameleon has changed colour recently. And the new colour is gold.


Jim Rickards,
Author, The New Case for Gold

Limited Special Editions of
Jim Rickards’
The New Case for Gold

The New Case for Gold

James G Rickards is an American lawyer, economist, and investment banker with 35 years of experience working in capital markets on Wall Street. He is the author of The New York Times bestsellers Currency Wars and The Death of Money. Jim also serves as Chief Economist for West Shore Group.

We have printed, and are shipping, just 7,000 Special Australian Edition copies of his latest book, The New Case for Gold. (All you need is a valid Australian mailing address.) Don’t miss out. To reserve your copy, click here.

James G. Rickards is the editor of Strategic Intelligence, the newest newsletter from Fat Tail Investment Research. He is an American lawyer, economist, and investment banker with 35 years of experience working in capital markets on Wall Street. He is the author of The New York Times bestsellers Currency Wars and The Death of Money. Jim also serves as Chief Economist for West Shore Group.

Money Morning Australia