Gold is down and investors are nervous. We have to ask ourselves, have any of the fundamentals changed? The answer is no, they haven’t. Government deficits are still increasing at an alarming rate, and world debt is at $220 trillion. In fact, world debt has tripled in the last 10 years.
The US is the biggest debtor and the debt is still increasing by $4 billion each day, or $1.5 trillion each year. Since Bernanke has become Chairman of the Fed, the federal debt has gone up by a staggering $10 trillion. That’s $10 trillion in just 7 years.
From 1980 to 2006, when Bernanke became Chairman of the Fed, the US debt went from $1 trillion to $7 trillion. But think about the fact that he has overseen the debt increase of $10 trillion in just 7 years....
But remember, printed money doesn’t add any wealth, it just adds misery. The continued money printing will just put the world in a worse position over the next few years. So the US debt is out of control and with no improvement on the horizon.
Congress can’t even save $1 trillion over 10 years, and they are adding $1.5 trillion every year. We also see 50 million Americans in poverty, with 47 million on food stamps. So the rising stock market has nothing to do with reality, but rather liquidity. But a rising stock market should end this year as well.
Look at what is happening to real people in the US. If you look at US disposable income from 2001 to 2012, it’s down 78% in real terms. Of course real terms means vs gold. Gold is the only true measure of what is happening to paper money.
Purchasing power in the US has declined by 78% in the last 11 years. If you look at the price of homes vs gold they are also down over 80%. I’ve also looked back since 1970, and from 1970 to 2013, hourly wages and manufacturing in real terms are down 87%. So all of this so-called increase in living standards is all based on debt. US unemployment is still 23%, with youth unemployment in major cities at 50%.
So the real economy in the US is not improving at all. If you look at the rest of the world, central bank balance sheets are still exploding. The deficit spending is continuing in all major countries and so all central banks have to print money to finance the deficits. They also have to print money to defer the bank problems we see turning up everywhere. In 6 years central bank balance sheets have gone from $5 trillion to $16 trillion, and this is just the beginning.
So, again, investors have to ask themselves, what has changed? Nothing has changed. Look at Japan which has the biggest debt/GDP in the world. Now they have just come out and said they will double the monetary base over the next 2 years. They are going to use every means possible to reach 2% inflation.
All of this will lead to flooding the world with printed money. Then we can look at the EU. They are in a total mess. The latest disaster in Cyprus is just the beginning. This will happen in many other European countries. They are all vulnerable. Look at Slovenia, Italy, Greece, Spain, France, the UK, etc, banking problems will happen in all of those countries as well.
When you look at Switzerland and the UK, they are the biggest money printers in the world in relation to GDP. Also, the Swiss and the UK banking systems are much too big. Look at Spain on the verge of collapse. A stunning 97% of the Spanish social security fund is in sovereign bonds now. This will happen in many other countries. Governments will force investors to put all of their retirement funds into government securities. This will especially happen in the US.
So there is no reason for investors in gold and silver to be nervous. The current price action is absolutely nothing to be concerned about. I’ve just explained that the fundamentals are there for continued and accelerated deficit spending and money printing. This will be reflected in a much higher gold price.
Our friend, Jim Sinclair, who understands gold better than anybody has explained the manipulation taking place in the paper market. This has nothing to do with the physical investment market. Demand is strong in the physical market. We are seeing more activity with investors buying physical gold than we have seen for quite some time. Investors are concerned and therefore they are rightly buying gold.
Talking with the Swiss gold refiners they see strong demand once again for this time of year. There is no letup in production. I am currently at a conference in Boston. This is a conference for hedge funds and family offices. These people still don’t understand gold. Virtually nobody here is invested in gold. It shows you how early we are in this bull market.
That will change over the next few years. We will see massive inflows into gold from these type of funds. It will be absolutely necessary to protect them from the coming destruction of their portfolios. So there is no reason for people to be nervous when it comes to gold. Gold is real wealth. It is an asset that will preserve your wealth in a way that no other asset will. As far as I’m concerned gold is going to $5,000 first, then $10,000, and probably much higher.