...I am often asked how I can say gold prices will rise to $10,000 without knowing developments in the world economy, or even what actions will be taken by the Federal Reserve. [The answer is that]…it’s the implied non-deflationary price of gold…What is the non-deflationary price? [It is the] price gold would have to be in order to support global trade and commerce, and bank balance sheets, without reducing the money supply and that’s $10,000 a [troy] ounce…
This article is an edited ([ ]) and revised (…) version of the original article (written by Jim Rickards) to ensure a faster & easier read. It may be re-posted as long as it includes a hyperlink back to this revised version to avoid copyright infringement.
If you take the global M1 of the major economies, times 40% (I use 40% backing. A lot of people don’t agree with that. The Austrians say it’s got to be 100%.) and divide that by the amount of official gold in the world, the answer is approximately $10,000 a [troy] ounce.
…Now, if you go to 100%, using M1, you’re going to get…$25,000 a [troy] ounce. If you use M2 at 100%, you’re going to get $50,000 a [troy] ounce. If you use 20% backing with M1, you’re going to get $5,000 a [troy] ounce. All those numbers are going to be different based on the inputs, but just to state my inputs, I’m using global major economy M1, 40% backing, and official gold supply of about 35,000 tons. Change the input, you’ll change the output, but there’s no mystery. It’s not a made-up number. The math is eighth grade math, it’s not calculus.
The above is where I get the $10,000 figure. It is also worth noting that you don’t have to have a gold standard, but if you do, this will be the price.
The now impending question is, are we going to have a gold standard? That’s a function of collapse of confidence in central bank money…Each bailout gets bigger than the one before. Yes, they do the bailouts, building upon “truncation.” Yes, governments don’t go down without a fight. Policy-makers will truncate a global financial crisis, but then take the analysis a step further…
If the next crisis is bigger than the last one, which I expect, and the central banks are tapped out, where is the money coming from? How will they re-liquify the world? The answer is, the IMF is going to print a massive amount of dollars of SDRs. Is that inflationary? Of course it is.
If you flood the market in dollars of SDRs, one of two things is going to happen:
- either that’s going to work, and will be highly inflationary, which is going to take gold to $10,000 a [troy] ounce, or
- it’s not going to work, in which case you’re going to have to go back to a gold standard, in which case it’s going to be $10,000 a [troy] ounce.
You can have multiple paths, and timing has to be watched, but the $10,000 number for gold is very well grounded analytically.
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