Here’s How It Happens…
Maybe I was too conservative.
Many a week back, I wrote that I expected gold prices to hit $2,500 by 2025.
Had a certain ring to it. And gold—then in the $2,350 range—clearly had the momentum to push it toward that goal.
But gold has just casually sailed to $2,429, setting yet another record high, and I’m now suspecting that we could very well see the $2,500 threshold by summer.
I’ve seen a fair bit of commentary guessing that gold’s strength is thanks to geopolitical unease.
Probably some is—at the margin. But the world’s ongoing crises seem regional and unlikely to boil over into a truly global crisis.
Of course, I could be wrong there. Maybe Russia/Ukraine becomes a war with NATO. Maybe Israel/Hamas becomes a wider Middle East war drawing in the US as an official combatant.
I doubt it. But it could happen.
What I do know is that the primary reason gold is moving has little to do with bullets and bombs… and everything to do with dollars and cents.
You can’t read the news these days without seeing some Wall Street biggity-big bemoaning the state of America’s finances… lamenting the lack of financial leadership in Congress and the White House… and warning that America faces a catastrophic comeuppance.
In an interview with Britain’s Sky News, JPMorgan grand poohbah, Jamie Dimon, noted for the thousandth time in the last 100 days that, “At one point, [America’s massive debt] will cause a problem… the problem will be caused by the market, and then you’ll be forced to deal with it and probably in a far more uncomfortable way than if you dealt with it to start.”
Jimbo is saying what I’ve been saying for a long time: The bond market is going to reach a point where it screams, “No more!”
At that point, bond markets are going to collapse, and America will face a vast financial and monetary crisis that forces a rethink of America’s reliance on debt.
Meanwhile, elsewhere in the UK, Ray Dalio spoke with the Financial Times. Dalio runs Bridgewater Associates, the world’s largest hedge fund. His comment: “I’m… concerned about the softening demand [for US Treasuries] to meet supply, particularly from international buyers worried about the US debt picture and possible sanctions (against countries other than Russia).”
Dalio is touching on a concern I’ve also been harping on for a while: Reducing demand for US debt means Treasury yields have to rise to entice buyers, but higher yields mean higher debt-payment costs for Uncle Sam, which means issuing more and more debt to repay larger and larger amounts of borrowing—a vicious and malevolent debt tornado.
Even the International Monetary Fund (IMF) and the Congressional Budget Office (CBO) are now beginning to warn of the same worry.
Problem is, I’m not convinced anyone in D.C. is listening. The necessary fiscal constraints would mean a level of national austerity that would anger voters, thus threatening the cushy jobs congress-folk don’t want to lose.
In fact, I’d wager that Congress wants a crisis, which it can then use to muscle through all kinds of legislation that upends what’s normal today. (Think: dismantling all kinds of social safety nets.)
My bet: The dollar is dramatically devalued in a pending crisis so that the US can pay down its debt. That, in turn, will prompt the world into a Breton Woods II moment that sees the dollar lose its role as world reserve currency—to be replaced by a basket of currencies, as well as gold and bitcoin. (But we’ll come back to that in a later dispatch.)
All of which helps explain what two other Wall Street biggity-bigs are up to these days.
Michael Burry, the hedge fund manager who earned a bazillion dollars calling a housing crash few others foresaw, has purchased 441,000 shares of Sprott Physical Gold Trust—the same gold trust I’ve owned for years.
Meanwhile, John Paulson, another hedge fund biggie who made a fortune predicting the housing crash, has been piling into a handful of gold-mining stocks.
Both men are making the same bet we’re making in my Global Intelligence service: The dollar faces a crisis, inflation is far from tamed, and gold prices will rise markedly from here.
Like I said: $2,500 by 2025 was too conservative. I think I’ll up it to $2,600 by 2025.
And by the time the crisis hits in the 2027/28 timeframe, we could be looking at $5,000 gold, on its way to five figures.
The best time to buy gold was 25 years ago. The second-best time to buy gold is now…
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