3 Min. Gold News – Jim Rickards – Gold – RT – June 15, 2016

3 Minute Gold News

A Quick Read for Busy People

A synopsis of an interview with Jim Rickards, New York Times bestselling author of The Death of Money and Currency Wars, by Ameera David and Edward Harrison at RT Boom Bust.

Jim is the editor of Strategic Intelligence, Chief Global Strategist for West Shore Funds, former general counsel for Long Term Capital Management, and a consultant to the U.S. Intelligence community and U.S. Department of Defense.

Topics:

 

U.S. Dollar
Gold
China
Why Buy Gold?
Forms of Money

 

Jim Rickards RT June 15, 2016

Jim Rickards

Interview Link

 

U.S. DOLLAR

The U.S. dollar has gained a little bit of strength lately, after showing a little weakness in the last several months.

This is a feedback loop.

It goes back to May 2013 with “taper talk”. The Fed has been tightening and easing policy, not by raising rates (we’ve had one increase in the last eight years or so), but by just talking about it.

The Fed sends out Regional Reserve Presidents to talk hawkish, then the dollar goes up. Conditions tighten and the market goes down. The Fed gets frightened and then they don’t raise rates, which is then viewed as a form of ease relative to expectations, so the dollar goes down again.

As the dollar goes down gold goes up, oil goes up and the stock market goes up.

Then the Fed starts getting hawkish again because the situation has eased, like what happened in February, March and April when the dollar was getting weaker.

So you just have this circle between the markets and the Fed. They’re each watching the other to make the next move.

This has been going on for three years at this point, starting back with the original taper talk by Ben Bernanke in May 2013, which almost sank the emerging markets.

 

GOLD

How is gold doing?

What gold does depends a little bit on what the Fed does.

The dollar price of gold is just in some ways the reciprocal price of the dollar — if you have a strong dollar you have a lower dollar price for gold and if you have a weak dollar you have a higher dollar price for gold.

Jim expects a weak dollar.

All it would take is a Fed rate increase and a stronger dollar to throw the U.S. economy back into a borderline recession.

Jim doesn’t think there will be a rate increase, but he’s open to the possibility and so is watching it closely.

He doesn’t think they will raise interest rates, mainly because of the international spill over effect — for example more Chinese flight of capital.

Even if the Fed did raise rates and it brought a lower price for gold, it would just be a better entry point for buying the metal, because the Fed is going to have to cheapen the dollar by something like 20% just to keep the U.S. economy going.

That’s what the currency wars are all about.

 

CHINA

Ed pointed out that China’s demand for physical gold is up 700% since 2010 and that China buys about 40% of all the gold that is produced every year.

China knows that inflation is coming and that the international monetary system is highly unstable.

The Chinese reserve position has come down from a little from over $4 trillion to about $3.3 trillion. Most of that is denominated in U.S. Treasuries.

The U.S. dollar has no greater friend than China. If I owed you $3 trillion in U.S. dollars you’d want a strong dollar too.

China is looking at the U.S., and the only way out for the U.S. is with inflation, which is going to diminish the value of the Treasuries.

Why doesn’t China just dump the Treasuries? They can’t.

The Treasury market is deep and liquid but not that deep and liquid. If they dumped them it could become disruptive very quickly and the President could stop it.

So what can China do if they have $3 trillion in Treasuries and can’t dump it?

They buy gold.

So then they have a big pile of gold and a big pile of dollars.

If the U.S. weakens the dollar in order to get inflation and make the Treasuries worth less, which Jim expects, then their gold will be worth more.

It’s a hedge position.

If the U.S. maintains a strong dollar, which would probably kill both economies, the gold won’t do very much but the Treasuries will keep their worth.

So by buying gold China is just creating a hedge position.

WHY BUY GOLD?

It’s not just the Chinese buying gold. Russia’s economy is 1/4 the size of China, so they don’t need as much as China to hedge, but they’re also buying enormous amounts of gold.

Iran, Turkey, Russia, Mexico — people all over the world are buying gold.

What’s coming?

Inflation.

It’s the only way out. There’s too much sovereign debt. Too much debt and not enough growth leads to currency wars.

If the U.S. can’t get the growth there’s no need to default on their debt — they just print more dollars.

So if you’re not going to default and you can’t grow your way out of debt then what’s the answer?

The answer is inflation.

But just because the Fed wants inflation doesn’t mean they can get it.

They’ve got deflation coming at them because of demographics, technology and deleveraging. So they have to try harder!

They’ll get the inflation eventually, and when that happens then expect the price of gold to skyrocket.

Gold is a store of wealth and it’s one way to preserve wealth.

If you’re in dollar denominated assets you’re going to get wiped out.

FORMS OF MONEY

Gold, SDRs, Bitcoin, dollars, euros and yen. They’re all forms of money.

They are all fiat and they aren’t backed by anything, except for one thing — confidence.

If people have confidence that it’s money then it’s money.

How strong is the confidence?

When you’re looking at the different forms of money just ask yourself which creates the most confidence.

 

Jim Rickards can be found on Twitter and at James Rickards Project.

 

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Gold is $1,29.80 U.S. per ounce.

Screen Shot 2016-06-15 at 11.11.06 AM

 

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AlbumCover.PreparingfortheFall

 

Preparing for the Fall live boutique album available on iTunes — featuring Wag the Dog, Black Swan Dive,  American Pie and Gods of the Copybook Headings.

 

 

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Coins and Crowns
words and music Elaine Diane Taylor
© Intelligentsia Media Inc. All rights reserved.
SOCAN/ASCAP
from the album Coins and Crowns available on iTunes

Single featured in Episode 1 of Mike Maloney’s documentary series Hidden Secrets of Money.

When a nation leaves the gold standard and sound money, and borrows to go to war, then hunger goes up, hope goes down, anger goes up, then it all goes down.

 


The Gods of the Copybook Headings
words by Rudyard Kipling and music by Elaine Diane Taylor
©2014 Intelligentsia Media Inc.
SOCAN/ASCAP
from the album Preparing for the Fall available on iTunes

The copybooks of the early 1900s gave us all the wisdom we need. The sayings that were copied are the truths, the gods, of our world. All the empires who followed the gods of the marketplace instead have fallen, and there’s terror and slaughter when the gods of the copybook headings return. The lyrics are by Rudyard Kipling. One of my gurus.

 

Another Week on Wall Street
words and music Elaine Diane Taylor
© 2013 Intelligentsia Media Inc. All rights reserved.
SOCAN/ASCAP
from the album Coins and Crowns available on iTunes

See the bankers wave their Wall Street wands and conjure piles of paper green. Naked short selling is like betting that your neighbour’s house will burn down. But in this scenario it happens to burn down. If the bankers win then we lose the whole world as we know it. I wrote this in 2009, with a lyric “A little grease (Greece) is floating out to sea, and little pigs (Portugal, Italy, Greece and Spain) are bobbing up and down, they’ll send a storm and we’ll see, when the tide goes out who’s naked on the beach“, and it’s coming on now. The world is changing as we know it.

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Nothing on this site is intended as individual investment advice. We’re all watching which way the wind is blowing.

 

 

 

 

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