Gold priced at US$8,000 sounds like something out of a children’s fable. When you consider that an ounce of gold fetches US$1,130 today, it’s not hard to see why. It seems a stretch to think that bullion could sell for seven times its current value anytime soon. And you’d imagine any such scenario would involve the end of the world too.
Believe it or not, this isn’t the stuff of fairy tales. It’s exactly where one economist believes things are heading. Willem Middlekoop sees gold at US$8,000 as not a likelihood, but a certainty.
Middlekoop is the author of the The Big Reset: The War on Gold and the Financial Endgame. He’s someone that speaks on the subject with an air of authority you’ll rarely come across. He predicted the 2002–2008 credit expansion experiment would result in a US housing collapse. Needless to say, he was right.
Now he says we’re staring at the end of the current global monetary system as we’ve come to know it. And, gold aside, what comes next could destroy everything in its wake.
What began in 2008, in the wake of the financial crisis, has morphed into something much worse. Instead of making banks accountable, policymakers did little to change the rules of the game. Instead of reining in credit, central banks went on another binge. Lo and behold, we find ourselves in the same place we were almost a decade ago.
Middlekoop doesn’t think the next crash will be as bad as the last one. He thinks it’ll be much worse. Gold prices rose by US$1,200 in the four years following 2007. Middlekoop says the fallout from the next disaster could make 2008 look like child’s play. And the beneficiary from this will be gold. He predicts bullion prices could skyrocket by 700% an ounce.
Whenever talk of global systemic change crops up, discussions over gold prices are never far behind. Gold has taken on this mantle as the antithesis of sorts to cheap credit. More and more people see it as a way of safeguarding their wealth. Especially so in an environment where currency stability is so flimsy.
That’s not to say a major financial disaster would bring back the gold standard. It wouldn’t, and that’s not the future we’re heading towards. There are many reasons for this, but it comes down to one principle. If something (like a gold standard) doesn’t work in the interests of central banks, then you can forget about it. Banks didn’t spend the 20th century destroying the gold standard to reinstate it again. That story is finished. So we look to the future.
Despite this, investors can take stock of the fact that gold never lose its inherent value. In fact, many gold investors pay little attention to prices. They feel vindicated when prices go up, but that’s not why they’re in gold. They’re in it for the safety and stability that gold provides to their wealth. And that’s an important point people often overlook.
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The other side of the gold bug
For those glued to price movements, Middlekoop’s forecast might make your eyes bulge. Keep in mind we’re talking about US gold prices here. Were US gold to shoot up to US$8,000 an ounce, Aussie gold prices would rise well above $10,000.
But it’s not just gold investors that would benefit from gold at US$8,000. The interesting thing about all this is that central bankers would too. Here’s Middlekoop’s take on it, courtesy of an interview he gave recently (emphasis mine):
‘By revaluing gold to a much higher level, to over $8000 an ounce, central bankers solve quite a lot of problems.
‘We know Plan A — the current financial system – will end soon, we can’t go on this way… so we need a monetary reset…and a revaluation of gold has helped central bankers in the past, such as Roosevelt in the 1930s. It would help to restore the balance sheet of The Federal Reserve.
‘It always ends in inflation…certainly in 2016, we can expect more QE…and when that does not defeat deflation (driven by global over-indebtedness), further unorthodox measures will be taken (helicopter money)…and eventually a gold revaluation.’
You’d agree with Middlekoop that there’s something rotten with the current financial system. The world’s in a major slump, despite credit never being easier to come by. It’s getting to the point where the dam is building up, and the only real solution is to just let it break.
That central banks can benefit from all this goes to show that, while investors can lose their fortune, the house always wins.
It’s also a cautionary tale for anyone who thinks gold prices will never climb above US$1,800 again. If Middlekoop is right, that could change — and soon.
Junior Analyst, Markets and Money
PS: Gold bugs don’t pay much attention to bullion prices. It’s reassuring watching gold prices rise, but it’s not the reason most people own gold. What’s more important is that gold safeguards wealth. Prices become irrelevant, because gold never loses its value.
In a world filled with so much uncertainty, owning gold seems more necessary than ever before. While Australia weathered the 2008 GFC, we might not be so lucky this time around.
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From declining growth rates, and terms of trade, all signs point to a major crash. Government revenues have sunk, while household debt is higher than it’s ever been. It all adds up to a recession that’s coming sooner than you think.
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