In a financial world of contradictions, chaos, and confusion, perhaps a “gold-centric” perspective will provide clarity.
The media is filled with comments from notable “gold-bashers” such as Benjamin Bernanke, Warren Buffett, and Bill Gates. Their criticisms of gold (in my opinion) boil down to:
However, if the “gold bashers” were correct then why are the following true?
We can find many other examples of the real value of gold and the global recognition of such. Ask yourself:
Can Gold Save The World from the Credit Bubble?
It has been reported that global debt is about $200 Trillion. Central banks supposedly hold about 30,000 tons of gold. If the total debt were backed by central bank gold at 40%, that would price gold about $80,000 per ounce.
In the US, the official gold reserve, which has not been audited in about 60 years, is about 8,200 tons. Official national debt is about $18 Trillion. If the official gold backed the debt at 100%, the price of gold would be about $70,000 per ounce.
Interest rates are at multi-generational lows. It has been reported that over $5 Trillion in sovereign debt “pays” negative interest. German 10 year debt pays less than 0.20% per year. Some European mortgages have negative amortization. Clearly credit, debt and currency bubbles have been created. All bubbles eventually pop, often with disastrous results.
The credit bubble has grown so large that the supposed central bank gold would have to be valued at $40,000 to $80,000 per ounce to back all the debt. Revaluing gold higher by a large factor may become necessary in the future to reestablish confidence in currencies. However a revaluation certainly will not be welcomed by central banks, governments, or most individuals. The transition to $80,000 gold, or even $10,000 gold, would be very traumatic.
But can the world increase debt forever, inflate the sovereign debt and global credit bubbles even further, and not create an equally disastrous hyperinflation or a severe deflationary depression? Something is likely to break.
Governments and central banks created the currency and credit bubbles. When fiat currencies crash in the next crisis, backing currencies with gold could “save the world” and restore confidence in fiat currencies but only after significant trauma.
Perhaps central banks will do the “right thing,” but only after they have exhausted all other alternatives. It will be a long and difficult wait.
Courtesy: Gary Christenson
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