-- Published: Monday, 19 May 2014 | Print | Disqus
By Peter Cooper
Gold investors ought to be reading ‘The Death of Money’ by Jim Rickards this summer. He explains how an executive order raising the gold price to $7,000 will be the only way to break a deflationary downward spiral in the US if money printing reaches its limits and the Fed pulls back, as is happening this year.
‘The Federal Reserve could make this price stick by conducting open market operations…’ he says. ‘The purpose would not be to enrich gold holders but to reset general price levels… this kind of dollar devaluation against gold would quickly be reflected in higher dollar prices for everything else.
‘The world of $7,000 gold is also the world of $400 per-barrel oil and $100 per-ounce silver. Deflation’s back can be broken when the dollar is devalued against gold, as occurred in 1933 when the United States revalued gold from $20.67 per ounce to $35 per ounce, a 41 per cent dollar devaluation.’
His conclusion is that ‘if the Unites States faces severe deflation again, the antidote of dollar devaluation against gold will be the same because there is no other solution when printing money fails.’
One important thing to note about Jim Rickards is that he’s a respected money manager and not a diehard believer in everything shiny. What he provides is a logical end-game to the times we are living through. Gold guru Jim Sinclair has said the same albeit without this full macro analysis.
Logic also tells you that a money with a fixed supply like gold will be worth more in a world awash with money printing. This explanation just points a path to how it gets there. It takes several leaps forward to achieve this and timing this is always going to be impossible. But events are going to start moving fast.
Last week saw a record amount taken out of US treasury bonds, according to market reports. It is not yet known who sold. Russian sales have been strong since the start of the year. China’s economy is slowing and this could be money coming out for a rainy day.
However, this is fully in line with the thesis propounded by Jim Rickards about a US dollar collapse. Gold, he argues, would probably emerge at the heart of a new global monetary system as the only money that you can really trust.
Time perhaps to download the full book for some early summer reading. ArabianMoney investment newsletter subscribers (click here) will have our latest round-up on precious metals in the next issue and hear why June may be the best month to buy gold.
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-- Published: Monday, 19 May 2014 | E-Mail | Print | Source: GoldSeek.com