What if gold does go to $5,000 or $10,000?
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
With gold hitting nine-year highs this month—and staying above $1,800—readers are asking for guidance on what to do if gold not only reaches new nominal highs, but blows by $2,000 and keeps going. What if it really does go to $5,000 an ounce, $10,000… or higher? And what if silver hits $100 and keeps rising?
What are our endgame strategies?
Before answering these questions, we have to think about what the world would be like if gold were flirting with 5-digit prices, and silver with 3-digit prices.
We can only guess, but it’s not much of a stretch to say that such prices imply a high-inflation environment in the US.
Such gold and silver prices would make it so by definition. But I mean more than that. I think we’d be seeing 1970s-style stagflation, and there would be great political and social unrest. I think it’s unlikely someone with the guts Paul Volker had would step in to set things right. And I think there’s zero chance today’s politicians would give such a person the power to do so.
In other words, I don’t think $10,000 gold would be the end of the story. If it does rise that high, I think the US would fall into a true hyperinflationary death spiral. At that point, the price of pretty much everything would be about to take off. At the same time, the actual value of many things would go into decline as people focus their spending on survival.
In short, the real endgame would be a major financial and social reset—after a collapse.
I hope I’m wrong.
Or, if I’m right about what $10,000 gold implies, I hope we never get there. Just reaching Bank of America’s now-famous $3,000 call would be more than enough to make fortunes for gold bugs like me. No need to wish for far greater misfortune befalling the rest of the world.
But frankly, with the Republicans joining the Democrats in pulling out the control rods that keep the US economy from overheating and melting down… well, I don’t want to predict a global collapse , but I think it would be foolish not to make contingency plans for the possibility.
Bearing in mind that all of the above is just my guess—I’m not going to glorify my guesses by calling them projections, estimates, or forecasts—there are some important things to keep in mind as we plan ahead.
The end of fiat currencies
It’s one thing for Zimbabwe or Venezuela to unleash hyperinflation. It’s quite another for the US to do so. To the degree that mainstream analysts and forex traders think about this at all, I think most assume that the euro, the yuan, or maybe some other currency like the (highly regarded for historical reasons) Swiss franc would take over as the world’s reserve currency.
That might happen.
For a while.
But all these governments are in the same fix, so I wouldn’t count on it.
I wouldn’t count on any country’s currency being a good hedge against the demise of the dollar.
The collapse of a financial instrument seen as part of the bedrock of the world—as the USD is—could and should call into question the very idea of fiat currencies.
Heck, we can’t even say that dollars, euros, yuan, or even Swiss francs aren’t worth the paper they’re printed on anymore, since most of the units in existence aren’t printed on paper.
I think the obvious solution markets will rediscover at this future point is gold—especially now that it’s easy to own and transfer in small, fractional amounts.
But even if I’m wrong about that and it’s Bitcoin instead, or some new form of wealth preservation and medium of exchange not yet devised, gold will still have value.
I couldn’t say that about any of today’s national fiat currencies.
You’ve been warned.
If gold goes back into circulation, there would, for a time, be an acute shortage of refined, standardized coinage and other bullion products. Demand for refined silver for coinage would go nuts. Governments might start stockpiling silver again, adding fuel to the fire under silver prices.
But even if these things don’t happen, much higher gold prices imply more buyers than sellers, which also implies a shortage of bullion products.
I wouldn’t expect bullion to be as physically hard to find as it was during the recent COVID-19 shutdown. It will just take more fiat currency units to get people to sell us any. But I would expect the premiums to soar, so that buying a one-ounce eagle, maple leaf, philharmonic, etc. will cost a lot more than usual above spot prices.
Both the possibility of gold going back into circulation and the potential for high premiums on widely recognized bullion products argue for increasing our allocation to such forms of gold—and silver—now.
For more on the topic of bullion—and why ETFs and other proxies are no real substitute—please see our free Independent Speculator Bullion Buyers Guide.
In a world where an ounce of gold is fetching $10,000 or more, we’re likely to have many pressing concerns in our lives, potentially including our physical safety. It would take a science-fiction novel to explore those possibilities, but there are two specific concerns many resource speculators share that are worth thinking about ahead of time:
• Currency controls. As things get dicey, I think it’s quite likely that even First World countries with excellent rule of law will resort to the little black book of dirty tricks governments pull out during a financial panic. One of the first is to impose currency controls on any form of money crossing their borders. These can range from imposing taxes on transactions to flat-out confiscation at the border. “You can leave, but your money stays here.” It may seem inconvenient now, but the clear solution is to spread our financial assets among several jurisdictions. Ideally, these would be places where we feel relatively secure in the integrity of our holdings—and where we wouldn’t mind spending time.
• Confiscation. The US confiscated private citizens’ bullion during the Great Depression. The darling of the Left—Franklin Delano Roosevelt—did this by executive order on April 5, 1933. If it can happen once, it can happen again. And if it can happen in the US, it can happen anywhere. Mind you, FDR’s government paid US persons for their gold (in paper money)… before devaluing the dollar. But at least they didn’t just seize it with no compensation of any sort. I wouldn’t expect most governments around the world to be so generous, especially if they first criminalize gold (“only drug dealers and child-molesters use gold,” etc.). The clear solution, again, is to spread our bullion holdings among several jurisdictions.
Internationalizing our lives is a daunting idea for most people. Travel is for holidays, and there’s no place like home. I understand. But when our homes risk getting taken over by gangs who see us as beasts of burden, it’s only prudent to plan for the worst and hope for the best.
Fortunately, baby steps are possible here. It’s not necessary to uproot and move the whole family to Paraguay.
For a starter piece on how to go about this, please see this article on internationalization.
Brace for uncertainty
This may seem obvious, but it’s worth stressing that no one can plot a perfect course in uncharted waters, even if their general outlook turns out to be right.
There’s a story—I don’t know if it’s true, but it’s illustrative—about a man who saw World War II coming years in advance. He did uproot his life, sell off his assets, and moved to the most remote location he could think of to wait the war out. He chose Midway Island.
The point is simple: one contingency plan is not enough.
This is why my comments on internationalization always stress multiple jurisdictions, not just one escape route. The same holds true even if internationalization is not an option.
Don’t put all your eggs in one basket. Of course. But also don’t count on just one backup basket being all you need.
The most important point I want to leave you with is another simple—but absolutely essential—one.
Don’t just take profits; realize them.
Imagine what could happen if savvy speculators play the coming debasement of the USD just right—with or without hyperinflation and collapse—making fortunes over the years just ahead… but those fortunes are only in the form of the very same USD that’s losing value.
A sudden draconian move by the state could wipe that fortune out.
Or the fortune could be left unmolested directly, but have its value inflated away.
As one reader asked me, “What’s the point of buying a stock that goes up 10x if the currency I buy it in loses 10x at the same time?”
If that were to happen, he’d be right about it being pointless. Fortunately for us, when resource stocks go vertical, they appreciate much faster than the currencies they’re denominated in lose value, and we have the opportunity to realize the value gained.
Key Point: By “realize,” I don’t just mean to cash out on big wins; I mean to go the next step and turn the currency gained into real—tangible—assets.
That can include more bullion, a more valuable home, productive ranch or farmland, durable businesses, or even commercial real estate in locations we believe will thrive in the future. It can be anything, really—as long as it’s something a government can’t create by fiat. Preferably, it should also be things that would be hard for governments to confiscate.
In a world where gold sells for $10,000 per ounce, any amount of fiat cash beyond what’s needed for short-term living expenses should be treated like a very hot potato. It should be turned into something more durable and useful in the shortest time possible.
And if any government does seize bullion again, whatever paper or electronic tokens they exchange it for should be immediately converted into some other real asset.
That’s my take,
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