Friday
This article was in the Financial Review a few days ago. I was asked to comment.
Going straight past Jim Rickards’ falling interest rates are the solution bit (no they’re not, they’re the problem), his prediction for the fiat price of gold is an estimation based on a false premise. There will be a long continuance of price deflation before we hit hyperinflation – if we ever do. It is true that the dollar price of gold could rise fairly substantially in a period of general price deflation, but not (just an opinion) to $10k. I can easily see $3k – $4k in 2020, but that also is just an opinion.
The “false premise” is that the price of gold will rise in proportion to the number of dollars in existence. That is the discredited ‘Quantity Theory of Money’. It does not work like that and never has, as a look at the money supply superimposed over a graph of the price of gold shows. There is no correlation. It is the demand for fiat that matters, not the quantity. Demand is best judged by demand for T bonds, which is still strong, even at ridiculously low interest rates.
Mr. Rickards does not state it here, but I suspect that he also believes that fiat is backed only by confidence. That is also wrong. Its strength is based on the irony that the higher (and more un-payable) the debt goes, the higher the demand for dollars – in order to service the debt.
Individuals, corporations and nations are all working their butts off to service debt. While that situation pertains, the demand for dollars will not fall.
Mr. Rickards (and many other Gold bugs) has been predicting Gold ‘to da moon’ for over ten years. They see it as an investment. It is not. Money is a way of conveying one’s wealth into the future. In dire circumstances, such as a debt collapse, the only way.
Head to Sydney, Australia, for G.A.I.C. (Gold and Alternative Investments Conference) in October. Keith Weiner, the chief economist of the Gold Standard Institute, and CEO of Monetary Metals, is keynote speaker on the main day – Saturday. Mr Weiner will be speaking in his MM capacity, not the Institute’s, but he is always worth listening to in any capacity.