The Perfect Economic Storm To Stack Up On Gold

Man Yin To



Summary

- Central bank reserve is proven to be an effective early warning indicator for predicting a currency crisis.

- The world has been secretly stockpiling gold for decades, which is not a good signal.

- If we are to return to the gold standard, the yellow metal should be revalued to $14,000-$35,000.


Recently, gold has seen a lot of movements and volatility. With its price is about to return to the level of $2,000, could it be the right time to take profit now, or is it better to wait until it records a new high?

If I were you, I would simply buy-and-hold and completely ignore the negligible fluctuations, because I am telling you that gold could hit $14,000 or even more. It is understandable that it may sound a little bit speculative, but consider the rise of value will not be linear but exponential.


(Source: Kitco)


We are entering a financial crisis that is the greatest the world has ever seen. But on the opposite side of every crisis, there always is an opportunity. The important thing is: Are you well-prepared and have the resources to play around when the moment comes?

If you have read my previous gold analysis, you may be aware that I have always preached to hold at least a small proportion of gold in the portfolio not simply for hedging against inflation, but for a monetary catastrophe such as the collapse of the currency system.

This reckoning day, as many economists believe is inevitable, will come ultimately. Now, it is best to prepare the ground, buy gold, and sit back during this perfect economic storm so that our wealth can be preserved for the future.

Insider Knowledge

To start with, let us look at what the banks have been doing lately. In a comprehensive analysis, researchers by the name of Frankel and Saravelos found central bank reserve is the most useful early warning indicator that can explain currency crisis across countries beforehand. From the chart below, it clearly shows that if the big leagues on this planet have been quietly stockpiling the yellow metal for decades, they probably know some insider information that the general public does not. In fact, since the abandonment of the Bretton Woods System in 1971, many central banks have been increasingly hoarding the most gold in their vault. So, does it signal something big could really happen soon? It could be, but our government will never tell us the truth.

If central banks really had confidence in themselves, i.e. paper money, they would get rid of all the gold in their vaults, sell it all off at high prices and put the proceeds into dollars, euros, yen or what have you. Instead they are clinging onto [gold] as something to hold on to if things really go down the drain.

--- David Marsh, a researcher with the OMFIF.



(Source: Isabelnet)


Fall of a Giant?

History has taught us the fiat system would often end up disastrously, and it is just a matter of time before people will wake up from the American dream to realize they are living in the world of excessive debt, thus creating a panic that will ever change the tide of the currency system.

In fact, the fiat system is so fragile that once the Fed loses its credibility, people would immediately dump their money and rush to something like gold that has intrinsic value. As a worldwide reserve currency, the dollar theoretically is less vulnerable but a handful of people abandoning the currency will be sufficient to create the butterfly effect that will influence the mass population.

The value of the dollar will soon decay with less and less people and countries are using it as medium of exchange. Currently, there is an increasing trend that countries are becoming less reliant on the dollar as per the chart below, which could pose a challenge to it as being the world's leading currency should the trend continue.


(Source: Wolf Street)

Gold Revaluation

For decades, there have been ongoing debates by politicians and economists of whether the world should return to the gold standard in case of the failure of the current system. Indeed, if central banks think they can print their way out of oblivion, then returning to the old ways might bring more benefits than harms.

I bet many Americans have already forgotten the day where the government confiscated their gold at $20.67/ounce and subsequently revalued it to $35/ounce in 1933. It was a legalized robbery that could happen today should the government deem it is necessary to protect the currency system a second time.

Jim Rickards, the former Wall Street veteran and best-selling author, claimed “$10,000 an ounce is not pie in the sky”. From the table below, I updated Jim’s forecast made in 2016 with the newest statistics.

If the world is to return to the gold standard, the yellow metal could be revalued to $14,000 or $35,000, in accordance with 40% or 100% reserve ratio, respectively. Do not be surprised at all, for this revaluation is not exaggerated in any case.

Back in the 1930s, gold was revalued to $35/ounce while the dollar still remained 75% of its purchasing power. Today, the dollar has lost more than 99% of its original value. Considering the speed of mining can never catch up with the Fed's printer, the valuation is very reasonable.



Key Takeaway


This article whatsoever does not encourage anyone to speculate nor to support the idea of fully loaded with the yellow metal.

Instead, it builds on my previous valuations to provide a new perspective for our readers. It is always worth knowing that the world is playing with fire, sooner or later it will hurt.

Hence, why would anyone ever trade their gold, the real money, for fiat, the fake money?

Ultimately, the intelligent investor is to diversify his asset classes and always include at least a small proportion of gold in his portfolio for wealth preservation in an unexpected disaster.

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