At the beginning of last week, I was challenged with a wager on the gold
price. The individual, who called me a “gold pumper”, wanted to bet $1
million on the gold price going below $1,000 before it reached the Maginot
Line at $1,350.
Since the gold price was $1,325 when I received the challenge, the odds
looked pretty good to me. Gold only needed to go up $25 for me to win $1
million but down $325 for the challenger to cash in. Thus, a no-brainer
really, especially since I was totally convinced that gold would break the
Maginot Line soon.
I suggested that we both place $1 million in a vault in Zurich, held in
escrow by a Swiss notary and I also set out the detailed rules for the wager.
The challenger came back and wanted to deposit $1million with his lawyer in
the US instead. Obviously not acceptable to me since being Swiss, I would
neither trust the US legal system, nor the other party’s lawyer or the US
dollar.
To make a long story short, the challenger started to procrastinate and
then as the price was rising, the challenger became nervous and pulled out
because, as he said, Paul Tudor Jones was bullish on gold. So not much
conviction there in his big bet! And then last Friday, gold broke above the
$1,350 Maginot Line.
So I didn’t actually win $1 million in fiat money or gold, but morally I
did of course and that felt just as good.
GOLD HATERS AND THEIR FALLACIOUS ARGUMENTS
People who hate gold obviously don’t understand its purpose nor the
history of gold as the only money that has survived throughout the ages.
Also, I have found that many gold haters have lost money speculating on gold
mining stocks and therefor are anti gold.
The gold haters always use the same fallacious arguments, like you can’t
eat gold. True, it is slightly harder to digest than paper money which you
can’t eat either. Gold haters, including lazy and tendentious journalists,
also choose a price level that suits their argument. They take the
gold price in 1980 at $850 and then argue what a poor investment is was as
gold went to $250 in 1999.
The fact that gold went up 24x from $35 in 1971 to $850 in 1980 is
totally ignored by the gold ignoramus. And then they pick the top in
2011 at $1,920 as an example of what a bad investment gold is today.
BUY HIGH AND SELL LOW – A RECIPE FOR BECOMING POOR
It is of course true that if you buy at the top and get out at the bottom,
you will lose money. And these investors who buy high and sell low will
quickly run out of money. I hear of people around me who didn’t buy gold in
2002 when I recommended it at $300. But when gold reached the front pages,
many bought not far from the $1,920 top and then sold as it crashed to
$1,300. Many investors feel more comfortable buying with the crowd as well as
selling with the same crowd and getting out at no profit or a loss.
Few realise that you must buy when the asset is undervalued and unloved
and not on anybody’s radar. Then all you need is patience and the market will
look after you.
GOVERNMENTS UNDERWRITE THE GOLD PRICE
What most investors fail to understand is that governments are their best
friend when it comes to gold. Because governments always underwrite
the gold price by constantly printing money and expanding credit.
That is why all currencies have fallen 97-99% against gold in the last 100
years. Thus, there is only 1-3% left for paper money to lose all their value.
And we must remember that the next move down involves a 100% loss
in value of currencies from today. This is what the world can expect
in the next 5-7 years as the financial system fails and governments, in a
desperate attempt to save the system, print unlimited amounts of money.
Remember that 2006-9 was a rehearsal. Nothing was solved at that time. The
can was just temporarily kicked down the road with $10s of trillions of
printed money, loans and guarantees. Since 2006, global debt has doubled from
$125 trillion to $250 trillion.
GOVERNMENTS CAN’T SERVCE THEIR DEBTS AT CURRENT RIDICULOUSLY LOW RATES
Most governments can hardly service their debt even with interest rates
around the world from negative to just over 2%.
Deficits and debts are continuing to grow globally. Only in the
US, eight months into the current fiscal year, debt has grown by $1 trillion
to $22.4t. On average US debt has doubled every 8 years since Reagan
became President. There is every reason to believe that this trend will
continue. This means that by the end of 2024, the US will have a debt of $40
trillion. That might seem unrealistic today but with rising deficits and a
new financial crisis in the next 5 years, $40t debt seems quite feasible.
INTEREST RATES TO REACH 1970s / EARLY 80s LEVELS AT 15%+
With a crash in the bond market and high inflation, or hyperinflation,
interest rates are likely to reach the teens by then just like in the late
1970s and early 1980s. By that time the Fed will have lost control of
rates as market pressure will prevail with panic in bond markets
globally.
With US debt at $40t in 2025 and interest rates at say 15%, total
interest cost would be $6t. Tax revenues are unlikely to rise from
current levels and will be maximum $3.5t. Thus, just interest costs
will be $2.5t above tax revenues. And so the vicious circle begins with
falling tax revenues and rising costs, more deficits, corporate and bank
defaults, debt levels exploding and interest rates surging. With
risk levels at extremes, any lender would demand extremely high returns.
HYPERINFLATION GUARANTEED
The above course of events is the perfect scenario for hyperinflation
which is virtually guaranteed. Paper money will reach its intrinsic value of
zero and gold will go up substantially in real terms and exponentially in
inflationary terms.
This scenario is inevitable and it is only a question of how long it takes
to develop.
As usual, the world at large will believe that governments and central
banks will again come to the rescue. Very few people understand that with $250t
in global debt, plus another $250t in unfunded liabilities plus $1.5
quadrillion in derivatives, the world is staring at total debts and
liabilities of over $2 quadrillion, which will all default.
Printing worthless money or issuing crypto tokens will not make one iota
of difference. An insoluble debt problem cannot be solved with more debt. If
you add worthless printed money to a debt which is also worthless, you have
the perfect concoction for a global disaster of colossal proportions.
MAGINOT LINE JUST THE FIRST HURDLE ON A LONG JOURNEY
With the above scenario guaranteed to happen, anyone who thinks that the
Gold Maginot Line at $1,350 will hold will need to think again. After the Fed
announcement yesterday, gold again broke the Maginot Line. Whatever the news
or the catalyst, gold is guaranteed to break the Maginot Line whether
yesterday was the definite break or it takes a bit longer. Remember that gold
in most other currencies is already past this level. It is only because the
dollar is temporarily strong that gold in dollars has held up. But the dollar
will soon start its journey to zero.
$1,350 is just the first obstacle which will be cleared. This journey will
take us to gold price levels which few can imagine today since these will be
multiples of the current price.
But remember that physical gold is not bought for speculation or
short term gains. No, gold is critical insurance and wealth preservation
against a world economy which is rotten to the core. That is the reason why
you must own gold.
MATTERHORN / GOLDSWITZERLAND – A LABOUR OF LOVE
I hear people who don’t understand gold sometimes saying that our views on
the economy are linked to the fact that we assist people to preserve wealth
in the form of physical gold and silver.
What most people don’t know is that when we created the safest system for
acquiring and storing precious metals outside the banking system, it was for
the purpose of our own private use and for a few wealthy investors that we
advised. Several years later we opened it up to outside investors, due to
demand.
Thus, what we created was not set up for commercial reasons but to protect
our own wealth. That later developed into a passion to assist other investors
to preserve wealth in the form of physical precious metals.
What makes our activities especially rewarding is that we deal with people
who are not masters of the universe and think they know it all. People who
buy gold for wealth preservation purposes are humble because they see the
enormity of the problem in the world.
They are interesting, free-thinking individuals who can see what is
happening and understand that it is essential to protect their assets by
applying stringent wealth preservation criteria. We are very privileged to
meet these people and we know that our collective thinking and planning with
them will be critical in withstanding the economic and personal pressures in
coming years.
Egon von Greyerz
Founder and Managing Partner
Matterhorn Asset Management
Zurich, Switzerland
Phone: +41 44 213 62 45
Matterhorn Asset Management’s global client base strategically stores an
important part of their wealth in Switzerland in physical gold and silver
outside the banking system. Matterhorn Asset Management is pleased to deliver
a unique and exceptional service to our highly esteemed wealth preservation
clientele in over 60 countries.
GoldSwitzerland.com
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