Monday , 29 May 2023

The Near-Term Future: 15-20% Interest Rates; $5,800-$8,500/ozt. Gold; Collapsing USD

When trouble starts in financial markets in the next couple of years, we will see:

  • the U.S. debt level increase dramatically by $10s or even $100s of trillions leading to more quantitative easing and eventual hyperinflation
  • interest rate escalate into the teens or higher leading to a bond collapse and major defaults
  • currencies collapse and finish their move to zero
  • the gold price somewhere between $5,800 and $8,500.
This article is an edited ([ ]) and revised (…) version of an article by Egon von Greyerz 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.

Interest rates will be 15-20%

Interest rates are at a historical bottom but, with the 35-year cycle bottoming last year, rates are now in an uptrend and at some point, in the next year or two, will start to accelerate.

  • Within less than 5 years, interest rates are likely to be in the teens or higher like in the 1970s.
  • Bonds will collapse, leading to major defaults.
  • With global debt in the $100s of trillions, more and more money will need to be printed just to finance the interest costs. Still more will be printed to prop up failing banks and government deficits – and that is how hyperinflation will start.
  • In parallel, currencies will collapse and finish their move to zero which started in 1913 when the Fed was created.

 U.S. debt level will increase dramatically in the next couple of years

With the debt ceiling lifted temporarily, US federal debt has swiftly jumped by $321 billion to $20.16 trillion. Over the last year US debt has gone up by $685 billion. Over the next few years, US debt is forecast by to increase by over $1 trillion per year. When trouble starts in financial markets in the next couple of years, we will see that debt level increase dramatically by $10s or even $100s of trillions. By 2020, the US will have run real budget deficits every single year for 60 years. That is an astounding record and will guarantee a dollar collapse.

The biggest gap is of course the US with $137 trillion. The 2015 US deficit was “only” $28 trillion which is 150% of GDP.

PENSION DEFICITS – There will be no pensions for anyone

Most people in the world don’t have a pension so they won’t be concerned but for the ones who are covered by pensions, they won’t be much better off. Most pension funds are massively underfunded and the amount they are underfunded by is absolutely astounding. We are looking at a staggering $400 trillion gap by 2050 according to the World Economic Forum.

The reasons are quite straightforward; an ageing population, inadequate savings and low expected returns. These calculations don’t take into account the coming collapse of all the assets that pension funds invest in such as stock, bonds and property.

It is a virtually certain prediction that there will be no conventional pensions paid out in any country over in 5 to 10 years and longer. The consequences are clearly catastrophic. The only country with a well-funded private pension system is India. Most families in India hold gold and as gold appreciates, this will protect an important part of the Indian population.

Gold will be $5,800 to $8,500 based on previous bull markets

Gold and silver are making a temporary pause but the uptrend is clear and acceleration is likely to start this autumn.

The chart below shows various projection alternatives compared to previous gold bull markets in the 1970s and in the 2000s. Whichever option we choose, they all lead to a much higher gold price from here between $5,800 and $8,500.

The above targets are still well below my long-standing target of $10,000 in today’s money but we won’t have today’s money since, with hyperinflation, money will become virtually worthless. The eventual dollar price of gold is likely to be multiples of $10,000, depending on how much worthless money will be printed.

…The risks in the world today are unprecedented in history as I outlined in last week’s article. Therefore, we are holding gold to protect against these risks which are both economic, financial and geopolitical.

We are facing the dual risk of a financial crisis with a failing banking system, as well as insolvent sovereign states, leading to all currencies being debased to zero. That is why investors must hold an important amount of physical gold and silver and not worry about daily price fluctuations.

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