Jim Rickards: The New Case For Gold

Let's just think about this contention that Gold should get caught up in some kind of deflationary downdraft along with other stuff…
Recall that we are talking about the price of the one, universally accepted form of money that is both unprintable, and nobody else's liability;  Gold. 

Recall that we are talking about the price of this Gold money, as denominated in an infinitely (digitally) printable form of money;  Dollars and other debt-based fiat currencies.

Recall that we are in a time of, historically speaking, monetary insanity, where we have stopped being hindered by the boundary of zero interest rates (note NIRP) and we see central banks continuing to print money in order to support (paper) asset prices in a system where the native, organic buyers of these assets (like broke pension funds, and you and me) have dropped out of the market to a high degree due to lack of funds   (http://www.zerohedge.com/news/2016-04-05/usdjpy-spikes-reuters-story-boj-debate-further-easing)   Even the FED continues to print… in case you are not aware, they continue to re-invest the income from the maturing assets on the balance sheet into more bond buying… the balance sheet has become a form of perpetual QE that underpins the US bond market.

So in the context of all this, where the Gold price today has been notably suppressed to the point where it's not far off the cost of actually extracting it from the ground… in a time when most other assets are at or near all time highs and Gold is 40% off it's (recent) highs, we are to believe Harry Dent when he says that Gold (money) priced in these infinitely printable Dollars (money) is going to go down in value?  Does this make any sense at all?  Is there too much Gold, and too few dollars, or has the paper Gold system been abused to the point where some folks (like Harry Dent) may have lost perspective on how rare this form of money really is.  

If all the world's Gold was distributed equally to all the people in the world, each person would have how much Gold?  The answer is 0.7 ounces.    

When the system starts to break… far from getting caught in a deflationary downdraft with other assets… we will finally find out the true value of money without counterparty risk.    

       

Dave said,

If we have a remonetization, gold owners are suddenly handed a prize - a full and complete price support (Rickards thinks it will be $10,000)
I would argue that remonetization is the wrong word.  Gold does not have to be re-introduced in to the monetary system.. it is treated as money already if you look at what various central banks are doing, including BIS.  No, what Rickard's is talking about is simply the revaluation of Gold post the collapse of the paper pricing and derivitizing mechanism.  This requires no, "remonetization".. is simply requires the collapse of the paper leverage in the system.   

JimH-

Gold does not have to be re-introduced in to the monetary system.. it is treated as money already if you look at what various central banks are doing, including BIS
Central banks are treating gold as a reserve.  That's not the same as gold being money.

Once again I think we're having a disagreement about the world you want to be living in, and the world we are all actually living in.

For all of us non-central banks out there, gold is definitely not money.  It is not monetized.  Monetized has a specific definition: when something is monetized, that means it is legal tender.

Is gold legal tender right now?  No, it is not.  You may WANT it to be legal tender, but wanting doesn't make it so.  Gold is not good for all debts, public and private.  It must be first exchanged into dollars, just like a foreign currency or any other asset, and then those dollars - actual legal tender - are used to pay your debts.

Re-monetization of gold means assigning a fixed exchange rate between dollars and gold.  That act makes gold into legal tender, since there is a fixed exchange rate.  Until that happens, gold isn't money.

It may act like a reserve for central banks - but that's not the same as gold "being money" for us peons.

JimH-

Let's just think about this contention that Gold should get caught up in some kind of deflationary downdraft along with other stuff.....
I believe what happens to gold will depend largely on the size of the deflationary downdraft.  As Dent has said, most inflation comes because of an increase in private debt.  If private debt collapses (via defaults), then whatever reflationary acts the government attempts will have to overwhelm the private debt deflation for gold to do well.

If the government doesn't reflate enough, gold will likely go down when measured in units of legal tender (i.e. FRNs).

Of course, if you lose your entire bank deposit, gold at $800 may look pretty good by comparison, but a stack of $100s would have looked even better.

Again, I believe it will depend entirely on the scale of the reflation versus the size of the loss in bank deposits/private debt.

My projection relies on my belief that gold's current price (at least on the "monthly" timeframe) is determined by the market, and not by an artificial price suppression scheme.  On the monthly chart, the price evidence is clear and convincing: when debt growth and commodities deflate, gold drops in price.

But if in fact the central bankers have been setting the price (on the monthly chart) to whatever they like all along, then my projection will end up being wrong.

In some sense, this is where the rubber meets the road.  If the trend in gold really cannot be manipulated over the longer term, and if you act counter to this, you will suffer losses during deflation due to your imagining that once the central bankers lose control over the manipulation scheme, the price of gold will simply rocket higher regardless of the level of deflation we are hit with.

Flip side is true, of course.

We are currently in a commodity price deflation. A graph of gold vs commodities shows that gold is out-performing i.e. it has diverged from commodities. To me this indicates that gold is behaving less like a commodity (which Dent thinks it is) and more like real money. Dent mistakenly thinks gold is just another commodity.
Dave, you said that central banks are ‘treating gold as a reserve’. How is that different to treating it as money? I know we are forced to walk around with paper currency, but gold is money in the truest sense.

I don’t consider ‘legal tender’ to be the definition of money. I like the definition used by Mike Maloney, which includes the attribute of ‘being a store of value’. Fiat currencies fall down here.
Further to Richard’s idea of going on a personal gold standard, the gold-backed MasterCard from Goldmoney/BitGold is an interesting idea, in that it allows you to spend gold (just like legal tender!), through on-the-spot conversion.

As usual Rickards provides an insightful and interesting interview. But I always treat everything he says with a grain of salt. He was an insider and probably still is. You can't escape that, ever. He is saying what he is allowed to say, to foster a generally positive light on the western powers that be, if it wasn't for their darned bumbling and misguided hatred of gold. They may be shortsighted and ideological, but they aren't evil -- that's the story we're being given. 
 
Bangladesh should have had its savings in gold, then it would have been safe...  Lol. Don't think so. Then Bangladesh would become the new hotspot for terrorism which the western powers would then have to invade for the sake of our liberty. Oh and while we're there we'll take their gold too, otherwise it might be used to fund more terrorism! And least when they lost their paper money they avoided being invaded. 
 
And the US still has its 8000 tonnes because the law says the Treasury can't sell off its gold. Well I understand that the Treasury is allowed to swap gold and then lease that out... 
 
And it's all China's fault that the gold price is manipulated and we just can't do anything about it... So let me get this straight... the paper price is set in London and New York, and for years China has been in this market rigging prices and there's just nothing we can do about it despite all our fancy Microsoft super computers... Lol. It's all China; the US would NEVER be involved in something so nefarious, other than just allowing it to happen because we can't stop it...
 
Is the gold in Ft Knox still there? Who knows, I guess we'll find out soon enough. Maybe we'll be pleasantly surprised and find out China really does just want to equalize with 8000 tonnes each, US and China. I doubt it. 
 
He maintains that the short selling of the airlines before 9/11 was merely "signal amplification" or something to that effect, the result of some affiliates of the terrorists trying to make a few bucks in the markets, which was then piled upon by the hedge fund algos to massively short sell -- basically upholding the official story about 9/11 being perpetrated by Muslim terrorists. Lars Schall has shredded Rickards on that point in this video. 
 
https://m.youtube.com/watch?v=NCTb_SkjjF0
 
I think Rickards is towing the line on issues that will become obvious after the financial supernova -- most obviously being a higher gold price. He will be vindicated when this happens as he rides off into the sunset as a hero. But those more sensitive issues TPTB want to keep hush hush forever? He tows the company line. 
 
Given that 9/11 was undoubtedly an inside job perpetrated by western leaders, and given the fact that western financial markets are completely artificially manipulated by the matrix of ESF tendrils, I find it a bit odd that Rickards criticizes Putin for having his hackers plugged in to western markets. If western powers can murder thousands of their own citizens and use this to take away our constitutional rights, then it isn't much of a step to assume they can and will also destroy the financial system when it's time. Why would they even need Putin? As a scapegoat. 
 
Undoubtedly when the plug is eventually pulled on the system and intentionally brought down by the western bankers, when the rubber band simply cannot be stretched any further and as much western middle class wealth has been stolen as is possible, Putin, and China likely as well, will be identified as the perpetrator. Maybe throw some Muslim terrorists in there too for a good story. Rickards will be praised for his gold predictions and the official version of 9/11 will be entrenched as truth in the history books because people will have bigger things to worry about than trying to dig up old Youtube Truther videos that will have been erased from the newly heavily censored internet. 

CM's pictures from post #19 are a telling reminder of what has been a standard feature of all governments over the centuries.  Confiscation can be direct, indirect, clandestine, overt or any other descriptor you choose. Consider bank fees, negative interest rates, QE programs or even pacifying legions as a few examples. If your thinking of hiding it in the garden, think again. They have just discovered an ancient Viking settlement in Canada by using infrared satellite images taken from space. Hmmm? The Lone Ranger used silver bullets. Now there's something I hadn't considered.

http://www.history.com/news/satellite-technology-suggests-new-viking-site-in-canada

Every time I feel remorse that my laboriously planned and immaculately executed investment plan of acquiring barbarous relics and self medication is disappointing analyst expectations at least I can say I have more gold than our fine neighbor to the north.  Or at least I did before that tragic boating accident. 

Dave,
In my state of Utah, gold and silver minted by the U.S. treasury is legal tender and the state is required to accept it for things like property taxes. I think it's also considered legal tender in the state of Arizona. Sure it's not an ideal form of payment and I would much rather trade in my dollars and hold on to my gold, but I just wanted to throw that out there. There are also a handful of states who have signed on to stop taxing the sale of precious metals in order to not discourage their purchase - Texas, Lousianana, Oklahoma, and Wyoming come to mind. Utah and the mountain west is a great place to live. 

lambertad,eanno-
Let me try and hit this from a risk and an accounting perspective.

So Utah requires that gold be accepted for things like property taxes.  That gets rid of the spread problem, which is good.  But are property taxes denominated in ounces or in dollars?  If in dollars, then how many ounces of gold must you save to meet your annual property tax liability?  If the answer is, "I can't say for sure", then gold isn't money - not from a balance sheet perspective.  You can't put "gold" in the "cash" bucket on your balance sheet.

Ultimately, if something is valued at a rate that fluctuates, it is not money, its just an asset.  It would be exactly the same from a risk standpoint as if Utah said they'd accept Canadian dollars (at the current exchange rate) for property taxes.  There would be no spread - but you could not know prior to the day of payment just how many canadian dollars you'd need to bring in order to meet that liability.

You guys may wish gold was money, you may like gold a whole lot, but from a risk analysis perspective, gold isn't money if there is a floating exchange rate.  It is just an asset that can be exchanged for money.

If gold is re-monetized, the exchange rate of gold vs money will no longer float, it will be fixed.  At that point, gold will once again be money.

Today, you are taking a risk position by saving money in gold - the risk that your liabilities denominated in local currency cannot be met if the price of the gold goes the wrong direction.  (Of course, there is always the chance that gold rises to $1400, and you can more than meet the tax liability; but if there is risk & reward, its not money, its an asset).

Gold sales people like to say "gold is the one true money" or some such.  It is just a sales pitch.  Gold is an asset, nothing more, for which they receive a premium when they sell it to you.   We may like its attributes, but "money" is not one of them, unless and until gold is re-monetized at a fixed exchange rate vs local currency, and we must recognize that we take a risk position whenever we acquire it.  By saying "gold is money" the gold sales people try and anesthetize us from examining the risk element.  Its the same thing a real estate agent says: "safe as houses", or "the price of houses has never gone down nationwide", to make the buyer forget about the chance the home price could actually drop.  Parroting a sales pitch is probably not in your interest if you want to think clearly about how everything works.

Ultimately, gold acts (from a balance sheet perspective) like a foreign currency.  I own gold, but not because I believe that "gold is money."  Gold is gold, and money is money.  They each act in different ways; I like them both for different reasons.

I feel the less we romanticize and parrot sales pitches, the more rational our decision making will be.

in the end TA's will be wrong. Big banks do make you believe you're picture is right or in the right direction but the algorithms are constructing it I believe.  Gold will never be monitized; Gold will price the currency and not the other way. http://www.usagold.com/goldtrail/archives/goldtrailone.html some history and why I started accumulating fysical gold in 2008.
2012 long read: https://victorthecleaner.wordpress.com/2012/02/22/currency-wars-why-the-united-states-cannot-return-to-a-gold-standard/

While the government has the power to declare what's money and what isn't, as Dave describes above, there's nothing preventing us from re-monetizing gold and silver.
You and I might decide that a quart of honey is equal to an ounce of silver and that's that.  Whether honey goes up or down in dollars won't matter to us.  Whether silver goes up or down in dollars won't matter to us.

I keep bees and know the work involved in getting that quart of honey.  You use honey and value its utility.  Once we agree that an ounce is a fair trade there's no reason for that price to ever fluctuate ever again unless we experience waaaaaay too much honey or waaaay too little silver in the future, and/or the opposite conditions.

But that's just the nature of how money and supply and demand are supposed to work.

 

Chris-
If the honey-maker has dollar-denominated liabilities that he must pay every month or else some asset is lost, and all his honey production is exchanged for silver, then he is assuming price risk by agreeing to fix the honey-silver exchange rate.  Simply put, he is going naked long silver, and if price of silver drops substantially, he runs the risk of missing his debt payment denominated in dollars.

I also guess that the IRS would want its cut based on the US dollar/silver exchange rate at the time the transaction took place - and that's another dollar liability.  (it is tax time after all, so that's top of mind right now).

And of course there are dollar-denominated property taxes also.

Going naked long silver may be a good thing in the long run, but I'm just saying one should be conscious of the risk taken.  Cash money has a distinctly different risk profile than "silver money" and "gold money", especially when it relates to tax and debt liabilities, and uttering the words "gold is money" does not make these (exchange rate) risks go away.  It simply obscures the risks.

Its the old story: if your income is in Zloty and your home mortgage is in Swiss Francs, movements in the PLN/CHF currency pair is a very real risk to your ability to continue making your mortgage payments that is both completely out of your personal control, and may bite you in the butt at a most inconvenient time.

Of course if our honey seller has no dollar debt, and nobody reports the silver-honey exchange to the IRS, and this is just a "spare change" affair for everyone involved, then naturally there is no risk at all.

It suggests that getting out of debt brings a certain freedom of action, doesn't it?

 

Hi Dave,
if as you say "On the monthly chart, the price evidence is clear and convincing: when debt growth and commodities deflate, gold drops in price", how do you explain the out-performance of gold vs commodities since 2008? 

(I would like to include a chart here, but inserting an image seems to be ridiculously difficult)

but from a risk analysis perspective, gold isn't money if there is a floating exchange rate. 
I'm no economist or mathematician, but I have noticed that the USDollar floats on the international foreign exchange markets in reference to other sovereign currencies.  It also floats on the "commodity" ""markets.""  But you might consider those special cases that don't apply to in-country transactions to which you were referring.  
Today, you are taking a risk position by saving money in gold - the risk that your liabilities denominated in local currency cannot be met if the price of the gold goes the wrong direction.  (Of course, there is always the chance that gold rises to $1400, and you can more than meet the tax liability; but if there is risk & reward, its not money, its an asset).
Yes, but I'm also taking a risk saving my labor/energy in dollars, or anything else.  Currently, I'm operating under the assumption that there is MORE risk in saving in USD's than in gold or silver, and that risk is rising every year.
Gold sales people like to say "gold is the one true money" or some such.  It is just a sales pitch.
Yes, but so is "Backed by the full faith and credit of the US government."  I hear them all as sales pitches and I have to do some due diligence and take some risks to decide where to put my savings.  I've gotten real shaky on government sales pitches.

In the last few decades in the US things have been so stable we've been lulled into complacency when it comes to money, savings, and survival in general.  "The next 20 years are going to be be very different than the last 20 years" and one way that will be evidenced is in volatility, unpredictability, broken contracts and promises, and so forth.  It's happened in other countries that currency undergoes swift declines in value, even to the point of retail shops having to change prices multiple times each day, post prices in multiple forms of payment (eg. national currency, acceptable foreign currencies, gold and silver) and rely on "black marketeers" outside the store or in the neighborhood to facilitate shoppers' purchases by swapping what the shoppers have to buy with for what is acceptable to the retail shop and/or government.  We are at a growing risk of those kinds of conditions in the OECD/West.

I like Mike Maloney's distinction: gold and silver are money; dollars (and Yen, Yuan, Pounds, Euros) are currency.  In fact, isn't that the US Constitution's view: only gold and silver can be money?  I also like thinkers like Ron Paul and Martin Armstrong who would agree, I think, that letting government or a private central bank decide what is money gives them tyrannical control over the people.  Even Rothschild, who was in favor of he and his cronies being able to decide what is money and be the issuer thereof said something like, "Give me control of a nation's money supply and I care not who makes the laws."  Like Ron Paul would say, "If the USDollar is so superior, what harm could come from allowing it to compete with other forms of 'money'?  Do away with legal tender laws and let the people and the markets decide what kind of payments and money they prefer and are willing to transact in."  Of course, that would be the death knell for any fiat currency, so it will not be allowed by our owners.

Maybe in the future we'll get a chance to try the "freegold" system, in which currency and gold (and silver) float against each other.  There have been many comments about "getting the price of gold right."  Rickards points out that Britain in 1925 went back on the gold standard but at a price that was drastically too low and led to a punishing deflation.  Personally, I wouldn't want to be the one charged with getting the price of gold "right" in a gold standard monetary system.  However, it would be much wiser and easier, it seems to me, if we could adjust the price (gold/currency ratio) from time to time instead of stitching ourselves into a straightjacket for all time.  Freegold!  This way the paper currency would always have gold/silver backing (and be Constitutional) but minor adjustments could be made to accomodate a growing (or shrinking) economy.  Pass a law stating that the gold/currency ratio could only be changed +/- 3% per year unless approved in a national referendum.  3% would normally be enough, but if an emergency arose (war, most likely) or some unexpected set of circumstances developed, let the leaders make their case to the people and let the people decide.  It's THEIR money after all.  And that would be a great way for the people to have the power to veto going to war: voting no on a big change in the gold/currency ratio would seriously restrict the funds available with which to wage a war.  And if "we the people" didn't like the changes in the gold/currency ratio, we could convert our paper currency into gold/silver, or exchange our gold/silver for paper currency.  There would only be a little wiggle room in the government or banks fiddling with the gold/currency ratio because the people would be free to move their savings from one to the other thereby negating any significant attempts by the government or banks to game the system.

Of course, all of that is pie in the sky because our owners won't allow any of these things because they benefit tremendously from the way things are, and because "we the people" aren't paying enough attention to demand what's in our own best interests.  However, a massive collapse of the current monetary system would provide a "teachable moment" and a brief window of opportunity to do something different and better…  Oh look! Here comes a massive collapse of the monetary system now.

"Welcome to the Hunger Games. And may the odds be ever in your favor."

https://www.youtube.com/watch?v=aWPWHU8x6kE

 

Eanno-

if as you say "On the monthly chart, the price evidence is clear and convincing: when debt growth and commodities deflate, gold drops in price", how do you explain the out-performance of gold vs commodities since 2008?
Oh gold's outperformance is clearly manipulation by the central bankers.  They're pumping prices higher to make their reserves climb in value.  :-)

Gold has seriously outperformed all the other commodities (the "index" chart below has all commodities set to "1" starting in 1960) over the longer haul.  At the same time, the rhythm of gold's price movements is still pretty clearly tied in with the rest of the commodity complex.  And if I were to toss a chart of China's growth in private debt as an overlay, the match is really strong.

 

You can see that different commodities peaked at different times, but its the rhythm of the movements that I'm talking about.

Now why has gold outperformed?  Crisis of confidence in government and central banking, perhaps?  It started (as you say) in 2008 and its just become worse over time.  Here's the gold-vs-metmin index.

As I see it, most of Rickard's points should give us optimism.  Gold is honest and we can't have an honest economy unless we are on a gold standard. The Powers That Be will fight to make the New Fiat Money, SDRs work.  We will need to spread the word that this is not acceptable.  TPTB will demonize Russian and China, blaming them for the E-pocalyse.  War may be the diversion to our woes.  Off topic, Climate of Sophistry has been kind enough to post my paper: http://climateofsophistry.com/2016/04/06/the-hydro-flask-challenge-to-anthropogenic-climate-change/ . I suspect many of you will find it quite fascinating and revealing. Comments appreciated. I want this paper to receive hones peer review.  That's you.  Thanks. Dan.

Dave, I think your definition of money is the problem. Your assumption that money = a medium of exchange, and nothing else, is the point of contention. Historically the definition of money has included a medium of exchange, a measure of value, and a store of value. Fiat currency definitely does act as the most common medium of exchange but it is a lousy store of value. Likewise gold is not a very widely used medium of exchange but it's an excellent store of value. By the historical definition of money, gold is a form of money because it is a medium of exchange for some transactions, it is a measure of value, and a store of value.
We can argue all day which form of money is "better", but the fact is that gold is a form of money, whether it meets the criteria as well as other forms is a matter of opinion.
"Ultimately if something is valued at a rate that fluctuates, it is not money, it's just an asset"
 

You just described everything on the planet. By that definition, nothing is money, and certainly not fiat which fluctuates constantly against everything. Here's the dollar index, you'll note that it fluctuates daily against other currencies;
Marketwatch.com/investing/index/dxy
You'll also note that the value of the dollar, denominated in gold, silver, pork bellies, timber, oil, et,etc fluctuates by the minute.
The problem I see is that you are personally viewing the dollar as the standard by which you measure all else. Thats just a certain narrow personal view. If you are comparing the value of A against B and that rate is fluctuating then it is as true that A has gone down against B, as B has gone up against A. Which perspective you take depends on your personal view. If you personally want to believe that the dollar never moves, that it is the center of the economic solar system around which all other things revolve, then your above statement is true. Personally I think that view will be the source of alot of financial pain for alot of people in the future.