Gold to 10k?

So says Jim Rickards at the AFR:

He said there is only a 35 per cent chance of a recession in the US over the next year, thanks to the Federal Reserve’s change in monetary policy direction in July when the central bank cut rates by 25 basis points to 2-2.25 per cent.

…He said that if the Fed stuck with its current tempo of 25 basis points cuts, then it wouldn’t hit zero until the northern summer in 2020.

…He said the base money supply in US, England, Japan, Europe and China is about $US24 trillion. Additionally, there are 33,000 metric tonnes of official gold, or gold owned by entities like central banks.

“What percentage of gold backing do you need for confidence in a gold backed currency? It’s a judgement call but I use 40 per cent.”

He argued Washington’s move to weaponise the US dollar had encouraged its major rivals Russia and China to seek out alternatives to the greenback. Both countries have tripled their gold reserves in recent years.

Meh. The reasoning is reasonable so far as it goes. But does our Jim really think that Europe, China, Russia and everybody else won’t also weaponise their currencies, putting upwards pressure on the USD.

As well, if it comes down to a simple gold reserve shoot out there is only one winner and it ain’t China or Russia

And there is one more consideration. The convergence of monetary and fiscal policy that is likely ahead will change all kinds of calculus around the USD and gold. If helicopter money arrives in the US first, and is spent on a lot of infrastructure, then it will be monetising deficits, lifting productivity, driving inflation and wages higher (especially with tariffs) and interest rates will rise more quickly than they did this cycle, right along with the USD after a period of weakness. Markets may initially view helicopter money as gold positive but the rebound will hurt gold pretty quickly.

I also see relative decline in China over the next five years as it slows in the middle income trap, leading to secular bid for the USD.

I am bullish on gold into the next business cycle but $1ok looks like an Austrian wet dream.

 

Latest posts by David Llewellyn-Smith (see all)

Comments are hidden for Membership Subscribers only.