The Case For (Much) Higher Gold Prices

July 3, 2013

This interview was recorded three weeks ago. We’ve been unsure of how well-received an interview about “$10,000 gold” would be received while the yellow metal experiences its worst quarter, price-wise, in history. But rather than sit on it any longer, we’re releasing it now and will trust our readers to look past the current price of gold and focus on the long-term macro arguments Nick presents. ~ Adam

Nick Barisheff, CEO of Bullion Management Group recently published the provocatively-titled book: $10,000 Gold: Why Gold’s Inevitable Rise Is the Investor’s Safe Haven. In this week’s podcast, Chris sits down with Nick to learn the math behind this forecast.

I was reluctant to put up a number and a timeframe. And when I say $10,000 gold, I do not mean this year, or even next year. It is probably a plus or minus five years scenario. What changed my mind was in 2011, when in the U.S. there was the raging debate over the debt ceiling.

You could see that there was no political will or ability to ever change [the United States‘ debt crisis], because it is impossible to either increase taxes or cut expenditures enough to really make a difference. You are not going to grow your way out of it. Nobody is predicting that that is going to happen.

So the only choice left is essentially, in simplified terms, to call it printing. When you look at that, then what you get is that the printing is going to continue, the deficits are going to continue, and, in fact, they are going to increase. And the interesting point is that if you plot U.S. debt versus the gold price, you almost get perfect correlation. So this is just a straight progression. Like, if you keep printing at the rate you are printing, you are going to get to $10,000. $10,000 is by no means the peak, and people have trouble coming to grips with $10,000. But if you hit $10,000, then we are into hyperinflation, and the numbers after that will sound absurd.

In making his price prediction, Nick also takes a historical view of the perfect record of failure of paper-based currencies:

Throughout all of history, there has never been a single instance where a fiat currency did not end in hyperinflation and complete collapse. There is not one example of a successful fiat currency. Because the simple thing is that if you give a printing press, in simplified terms, to a politician, a king, an emperor, a president, a prime minister, you name it, they will overuse it every single time. That is just human nature. And that is what happens.

It is particularly a deficiency in democracy, because democracy will also always have people vote themselves a bunch of benefits that the politicians promise to get elected. And that is how you get this spiral effect that keeps going. So the end result is the same.

This time around, though, we are in unchartered territory, because you have got global fiat currencies and you have got a global reserve currency. So unlike hyperinflations in the past like, everybody knows about Germany, it was restricted to a country this time it is going to be global.

In terms of the short term, there is probably no other choice but to print more, because if the Fed pulled back in its quantitative easing, we would have a massive depression. So for the moment, you print more. But the problem is, what happens down the road?


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