Sunday , 19 May 2024

Coming Currency Debasement Good for Gold (+2K Views)

When I look strictly at what’s actually going on in the world, I have to think that gold will go to at leastGold-bars-on-100-and-50-dollar-bill $2,000 in this cycle and there are very credible scenarios in which it could go to a multiple of that number. Why am I so bullish for the yellow metal? Let me tell you why.

The comments above & below are edited ([ ]) and abridged (…) excerpts from the original article by David Galland (

At the peak of the last great U.S. inflation and corresponding gold bull run in the late 1970s, the government had a simple yet very effective tool to deal with the then prevailing problem of runaway inflation: aggressively raise interest rates, thereby contracting the money supply. Once inflation was tamed, the Fed was then able to steadily reverse course by lowering interest rates, effectively rebooting the economy and setting the stage for a protracted bull market.

In the current scenario, with everyone and every government up to their eyeballs in debt and interest rates already near 50-year lows, the problems the economy faces are distinctly different and far more intractable. Simply, there is no conceivable way the government can raise rates without destroying what’s left of the economy. Besides, in the absence of price inflation, why would it want to? Quite the contrary, using the lack of price inflation as its cue, it is going to great lengths to keep rates low in order to encourage yet more spending and more debt.

The hope is that, over time, the Fed will be able to manage the inevitable rate increases so they occur very slowly. That mindset cements in the cheap-money policies for as far as the eye can see, or at least until – again, it hopes – debt levels fall to the point where an increase in interest rates won’t be so devastating.

But there’s the rub – because at the same time the U.S. government is pursuing some of the most aggressive easy-money policies in its history, it is simultaneously engaged in historic levels of deficit spending thus, when interest rates ultimately start rising, they’ll be rising on an even larger pile of debt which, of course, the government will be even more anxious to avoid – because at that point they’ll only have one option: default on the debt, either suddenly or over time, with an even more aggressive dollar debasement.

All of which is to say that we are now in a classic negative feedback loop that can only have one outcome – a lot more currency depreciation and it’s gold that comes out the winner.

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