The Case for $15,000 Gold

3 Pillars Were you forwarded this email? [Sign-up to The Daily Reckoning here.]( [Unsubscribe]( [Daily Reckoning] The Case for $15,000 Gold - If gold doesn’t change, why does its price fluctuate so much?… - The 3 pillars that form the basis of $15,000 gold… - Then Jim Rickards shows you the brand new dynamic that could provide a powerful tailwind for gold… Recommended Link ["Your chance to see this is coming to a close”]( [Read more here...]( This could be the most important message you see all year if you are serious about securing your financial future. A famed gold expert has said we’re witnessing a rare occurrence in the gold sector that we haven’t seen for years… In this short message he urges you NOT to invest in anything until you hear this. This important briefing comes down [tonight at midnight.]( [Click Here To Learn More]( Portsmouth, New Hampshire February 8, 2021 [Jim Rickards] Dear Reader, Gold gained 24.6% last year, while silver gained 47.4%. But what exactly did it gain against? Gold is historically volatile, except when the world is on a gold standard. This is not because of gold itself, it’s because of the currency used to measure the value of gold. Physical gold is an element, atomic number 79. It doesn’t do much. But, the price of gold is measured in currencies that do a lot. You can’t look at gold prices without considering the currencies in which they are denominated. You then have to ask, what affects currencies? Currencies gain strength on higher interest rates and strong economic performance. They weaken in the face of inflation, lower interest rates and recessions. They can move up and down quickly in the middle of currency wars. All of this hyperactivity in currencies is reflected in the price of gold, even though physical gold remains unchanged. Looking down the road, I expect the dollar price of gold to hit $15,000 per ounce by early 2026. This forecast has three pillars: The first is a prospective loss of confidence in the U.S. dollar and other reserve currencies due to excessive debt creation and non-sustainable fiscal policy. When confidence is lost, central banks may have to revert to gold as a benchmark or return to the actual gold standard to restore confidence. A critical step is getting the price right. Using existing money supply, a 40% gold backing, and available gold supplies, the implied non-deflationary price of gold is $14,000 per ounce (and getting higher as money supply expands). The second pillar is the need for governments to overcome disinflation and deflation. Excessive debt loads are a headwind to growth and cause precautionary savings, both of which are deflationary. The only reliable way to break the back of deflation (and, no, money printing does not work) is to devalue the dollar against gold. This was done in 1933 and 1971, and it worked to create inflation both times. An 85% devaluation of the dollar (about the devaluation achieved in the 1970s) will inflate away the debt burden, stimulate nominal growth and result in a gold price of $15,000 per ounce. The third pillar is simply supply and demand. Global gold production has flatlined at around 3,300 metric tonnes over the past five years. Production is declining, partly due to COVID-caused mine shutdowns. Strong hands refuse to sell the gold they own while new demand is surging. Flat supply and surging demand is a recipe for higher prices. The U.S. Mint has announced that it was not able to keep up with the demand for gold and silver coins through 2020 and into January 2021. This does not mean there is a global shortage of gold and silver bullion; coins are a relatively small part of the overall bullion markets. Most physical gold and silver transactions are in bars and involve much larger quantities purchased by central banks and ultra-high-net-worth individuals. But coin sales offer insights into the mindset of everyday citizens and can be a leading indicator of a shift in perceptions about inflation and social unrest. The statistics are striking. What’s most interesting is that the premiums being paid for gold and silver at the retail level are included in commissions. Dealers quote prices as “spot plus $7.00” or so in silver and “spot plus $90” or so in gold. These commissions are in the 5% range for gold and the 25% range for silver versus a normal commission closer to 2% to 4%. That reveals the real price of gold and silver is significantly higher than the screen price for paper gold and silver contracts on COMEX. The expansion of commissions does not reflect dealer operating costs. It reflects scarcity, which does not exist in paper markets because paper contracts can be expanded at zero marginal cost. The bigger question for investors is, when does scarcity in physical bullion play out in the paper contract world? That may not happen for some time, but when it does, it will be an earthquake. This makes gold and silver the ultimate asymmetric trade. Bullion has limited downsides based on scarcity and demand and huge upsides based on an inevitable narrowing of the gap between the real price in the physical market and the manufactured price in paper contracts. The best entry point of the year is likely to be right now. Below, I show you the brand new dynamic that could impact gold. I began studying gold nearly 50 years ago, but I had never considered it before last month. What is it, and how it might impact future gold prices? Read on... Regards, Jim Rickards for The Daily Reckoning Editor’s note: All the pieces are in place for dramatically higher gold and silver prices. And today’s prices will look like an absolute steal in the days ahead. In our eyes, there’s no more reliable source for precious metals than [Hard Assets Alliance.]( The Alliance, of which we are proudly a part (full-disclosure: we get paid for bringing in new “Alliancers”), operates on the principle of simplicity. They’ve made the act of buying, holding, and taking delivery of precious metals easy as ever. If you’re a newbie to gold or silver — or if you’ve tried online dealers in the past and the complexity has put you off — there’s no easier way to buy and hold real physical metal and at the lowest cost in the business. And setting up an account is FREE. [Click here to boot up your FREE account in five minutes or less.]( Recommended Link [Legend Who Bought Amazon In 1998 Says: Now Is The Time]( [Read more here...]( Wall street legend Chris Rowe says there’s a huge stock market event looming - and he’s revealing his #1 pick for free. [See This ASAP]( The Daily Reckoning Presents: “Gold wins directly if the Bros buy GLD. Gold wins indirectly if the Bro army destabilizes the financial system”… ****************************** The “Bros” Are Another Tailwind for Gold By Jim Rickards [Jim Rickards]I’ve written about gold extensively over the past twelve years. In 2016, my bestselling book, The New Case for Gold was published. It was written to encapsulate the knowledge I had gained about gold over four decades, starting with my graduate training in international economics during the last years of the Bretton Woods gold standard. Over time, I expanded my scope from gold as a monetary asset to include knowledge about gold mining, the chemistry of gold and the history of gold. Over the course of my education and experience in gold, I have visited gold vaults, gold mines and gold refineries. I have seen the gold ring at the London Metals Exchange. I have spoken with top executives in the secure logistics field and central bankers, including Paul Volcker, Ben Bernanke and Jay Powell. I have been a keynote speaker at the most prominent gold conferences on six continents. I have considered technical, fundamental and geopolitical aspects of gold pricing. However, until now, there has been one aspect of the gold market I had never considered. That missing aspect is: the Bros. Who are the Bros? They’re the group that has been turning stock markets upside down in recent days. They’re the group that took GameStop from $20.00 per share on January 12, 2021, to $468.00 per share (intraday) on January 28, a 2,240% gain in two weeks. The Bros play for keeps. It is estimated that hedge funds lost $20 billion collectively in January, shorting GameStop and other stocks that Bros were determined to bid up. Melvin Capital nearly went under fighting the Bros, and a $2.75 billion rescue of the hedge fund was organized by Citadel and Point72, run by legendary trader Steve Cohen. The definition of “Bro” is hard to pin down. Of course, it’s short for “brother” and is a common salutation among millennial and GenX males. The stereotypical Bro image is a late-20-something frat boy in a soccer shirt and baseball cap holding a red plastic cup of beer. Until recently, Bro culture seemed mostly confined to watching sports, playing video games and listening to music with the occasional gig job as an UBER driver. Then a funny thing happened on the way to the pandemic. The Bros were locked down and quarantined like the rest of us. They got their $1,200 checks from the government last spring as part of COVID relief. Being conversant with video games, they flocked to a new online broker with a mobile phone app called Robinhood. The Bros took to Robinhood like it was the latest Xbox game. Of course, it has long been observed that stock trading is just legalized gambling (and there has always been some truth in that). Robinhood offered commission-free trades, fractional shares, and, above all, call options that contain embedded leverage. The stuck-at-home Bros with money to burn started to buy call options through Robinhood right around the same time that the stock market began its recovery from the March 2020 lows. As the market powered to new all-time highs, the Bros made money, lots of it, because of the built-in leverage of options. To the Bros, this was better than Monday Night Football and Las Vegas combined. The Bros received ample encouragement from two sources. The first was Dave Portnoy, the founder of Barstool Sports, a widely followed media channel that focuses on sports analysis, sports betting and popular culture. Portnoy was stymied when sports shut down in March 2020 due to the pandemic. He quickly pivoted from sports to stocks and became a stock guru with millions of followers, including the Bros. Portnoy’s stock recommendations were producing massive profits. That’s an entirely predictable result when you use leverage in a bull market. The Bros didn’t get it, and Portnoy didn’t particularly care. What mattered was that the world had a new stock guru with an army of devoted followers behind him trading on every tip. The second source was a message board on Reddit, the news aggregator website, called r/wallstreetbets. It is basically a chat room for the Bros and others who want to share tips and strategies regarding the ramp up in GME and other favorites, including AMC, Bed Bath and Beyond, and a few other stocks favored by those running short squeezes aimed at hedge funds. Recommended Link [Gilder: “This Reboot Could Make You Rich”]( [Read more here...]( A wealth revolution is coming. And it could make you very… very… rich. That’s the latest forecast from the man they call “America’s #1 futurist”… “Wall Street’s most influential technology trader”… and “a true American genius.” How so? “We’re headed for a potential $16.8 trillion reboot,” he says. “Nobody will remain untouched. And a few early investors could walk away with a king's ransom.” [Click Here To Find Out More]( Neither Dave Portnoy nor r/wallstreetbets are regulated. The Bros are not regulated. Everyone is subject to the anti-fraud provisions of the securities laws, but herd behavior and bubble valuations are not fraud; they’re just human nature in an extreme form. The typical Bro might have only $10,000 in his trading account (probably borrowed from his parents). But, $10,000 times one million Bros equals $10 billion of capital. When the same $10 billion is poured into options with 10:1 leverage, the market impact is $100 billion. That’s enough to get even Stevie Cohen to sit up and take notice. In fact, Cohen’s Point72 fund is down over 10% on the year, a loss of $2 billion in just one month. What does all of this craziness with the Bros, the hedge funds, Robinhood and social media have to do with gold? Possibly a great deal. The Bros may decide to squeeze gold shorts the way they squeezed shorts in GameStop and AMC. They would do this by targeting GLD, the leading gold ETF. GLD is technically a security traded on the New York Stock Exchange. It tracks the price of gold, but a buyer owns shares in a trust, not in physical bullion. Even if the Bros don’t buy GLD in mass, hedge funds with short positions might cover their shorts out of fear the Bros could strike at any moment. That alone would be enough to give the price of gold a boost. The second way gold could get a boost from the Bros is more serious but potentially more lucrative for gold investors. The financial system is tightly interlinked. Small disturbances in one corner of the system can cause catastrophic repercussions in the system as a whole. This was evident in 1998 when the collapse of one hedge fund, Long-Term Capital Management, nearly brought the entire global trading system to a halt. This happened again in 2008 when the Fed and Congress had to intervene to prevent the sequential collapse of every major bank in the world. As I mentioned, hedge funds have recently lost about $20 billion because of the Bros. Once a hedge fund drops 20% or more (as many have), it gets hit with a wave of redemption notices as investors head for the exits. The fund itself has no incentive to carry on because it would need to make 40% or more in profits before it can regain its high-water mark. The fund earns no incentive fee in the meantime. The combination of high redemptions and no incentive fees forces hedge funds to put up gates and move into liquidation mode. This puts downward pressure on stock markets as the unwinding of multi-billion-dollar trades begin. That’s bad enough, but it can easily get worse. Some funds experience the equivalent of a run on the bank where mark-to-market losses, margin calls, forced sales and lost credit lines quickly put the fund into a melt-down before the gates can even be closed. Then the losses move to the prime brokers and banks who clear transactions for the fund. At that point, it’s a short step to a full-blown banking crisis. Either forced selling by hedge funds or the emergence of a banking crisis would be enough to cause a huge spike in the price of gold as fear displaces greed in global markets. Gold has moved sideways the past few weeks, trading in a tight range between $1,825 and $1,870 per ounce. Typically that kind of range-bound trading in a volatile commodity indicates a coming breakout, which could move in either direction. Gold is far more likely to break out on the upside than the downside due to a combination of falling interest rates, stock market volatility and a fearful trading due to the ongoing struggle between the Bro army and the big banks. The idea that frat boys drinking beer can destabilize the global financial system seemed like a stretch a few weeks ago. But, a combination of COVID quarantines, broker apps, zero rates, zero commissions, government checks and social media have converged to empower an army of retail traders with more collective firepower than the biggest funds and banks. Gold wins directly if the Bros buy GLD. Gold wins indirectly if the Bro army destabilizes the financial system. Both possibilities are in play. Gold is also poised to win on fundamentals with or without the Bros. Regards, Jim Rickards for The Daily Reckoning Ed. note: All the pieces are in place for dramatically higher gold and silver prices. And today’s prices will look like an absolute steal in the days ahead. In our eyes, there’s no more reliable source for precious metals than [Hard Assets Alliance.]( The Alliance, of which we are proudly a part (full-disclosure: we get paid for bringing in new “Alliancers”), operates on the principle of simplicity. They’ve made the act of buying, holding, and taking delivery of precious metals easy as ever. If you’re a newbie to gold or silver — or if you’ve tried online dealers in the past and the complexity has put you off — there’s no easier way to buy and hold real physical metal and at the lowest cost in the business. And setting up an account is FREE. [Click here to boot up your FREE account in five minutes or less.]( --------------------------------------------------------------- Thank you for reading The Daily Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [James Rickards][James G. Rickards]( is the editor of Strategic Intelligence. He is an American lawyer, economist, and investment banker with 35 years of experience working in capital markets on Wall Street. He is the author of The New York Times bestsellers Currency Wars and The Death of Money. Add feedback@dailyreckoning.com to your address book: [Whitelist us]( Additional Articles & Commentary: [Daily Reckoning Website]( Join the conversation! Follow us on social media: [Facebook]( [LinkedIn]( [Twitter]( [RSS Feed]( [YouTube]( The Daily Reckoning is committed to protecting and respecting your privacy. We do not rent or share your email address. By submitting your email address, you consent to Paradigm Press delivering daily email issues and advertisements. 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