The Big Question: What gold price would be legislated to reflate the U.S. and global economy?
I can’t tell you what gold price the G-20 would ultimately agree to.
But here’s what they will be looking at …
e.g.,
* To monetize 100% of the outstanding public and private sector debt in the U.S., the official government price of gold would have to be raised to about $53,000 per ounce.
* To monetize 50%, the price of gold would have to be raised to around $26,500 an ounce.
* To monetize 20% would require a gold price a hair over $10,600 an ounce.
* To monetize just 10%, gold would have to be priced just over $5,300 an ounce.
Those figures are just based on the U.S. debt structure and do
not factor in global debts gone bad.
But since the U.S. is the world’s largest debtor and the
epicenter of the crisis, the G-20 will likely base their
final decision mostly on the U.S. debt structure.
So how much debt do I think would be monetized via an executive
order that raises the official price of gold?
What kind of currency devaluation would I expect as a result?
I would not be surprised to see the G-20 monetize at least 20%
of the U.S. debt markets. THAT MEANS …
* Gold would be priced at over $10,000 an ounce.
* Currencies would be devalued by a factor of at least 12
to 1, meaning it would take 12 new dollars or euros
to equal 1 old dollar or euro.
The return of the Gold Standard?
“But Larry,” you ask, “how could this be accomplished when we
no longer have a gold standard?
Further, are you advocating a gold standard?”
If the G-20 monetizes at least 20% of the U.S. debt markets,
gold could easily hit $10,000 an ounce.
If the G-20 monetizes at least 20% of the U.S. debt markets,
gold could easily hit $10,000 an ounce.
My answers:
First, you don’t need a gold standard to accomplish a devaluation
of currencies and revaluation of the monetary system.
By offering to pay over $10,000 an ounce for gold, central banks
can effectively accomplish the same end goal —
monetizing and reducing the burden of debts, via inflating
asset prices in fiat money terms.
Naturally, hoards of gold investors will cash in their gold.
The central banks will pile it up.
At the same time, other hoards of investors will not sell
their gold, even at $10,000 an ounce.
But the actual movement of the gold will not matter.
It is the psychological impact and the devaluation
of paper currencies that matters.
Second, I do NOT advocate a fully convertible gold standard.
Never have.
There isn’t enough gold in the world to make currencies
convertible into gold.
It would end up backfiring, restricting the supply of money
and credit.
What should you do to prepare for these possibilities?
It’s obvious:
Make sure you own some core gold, as much as 25% of your
investable funds.
Also, as I’ve noted in past Money and Markets issues,
you will want to own key natural resource stocks,
and even select blue-chip stocks that will participate
in the reflation scheme ...
Best wishes,
by Larry
AI
