Jim Rickards : On Trump and Gold

[Y_Participant 4591]

Jim Rickards for the Daily Reckoning
Darien, Connecticut
12th June 2017

James G Rickards is a lawyer, former Wall Street banker, consultant to the US Government and regular commentator on finance, and is the author of The New York Times bestsellers Currency Wars: The Making of the Next Global Crisis, [2011], The Death of Money: The Coming Collapse of the International Monetary System,[2014], The New Case for Gold, [2016] and the Road To Ruin [2017]

He graduated from The Johns Hopkins University in 1973 with a B.A. degree with honors and in 1974, from the Paul H. Nitze School of Advanced International Studies in Washington, D.C. with an M.A. in international economics. He received his Juris Doctor from the University of Pennsylvania Law School and an LL.M in taxation from New York University School of Law.

He is a regular consultant for the US Pentagon and Washington inner circles on international monetary systems and currency wars. He runs a free website “The Daily Reckoning’ as an editor and regular contributor.

The Real Agenda of Trump’s Accusers

Is it over?

I’m talking about the circus in Washington, D.C. I’ve never seen a more hysterical waste of time and effort than the recent frenzy of leaks, allegations and testimony about “Russian collusion” that’s consuming the nation’s political class and their hangers-on in the media.

I’m a lawyer (actually, I have two law degrees and practiced law for over 40 years before becoming a full-time writer), so I take the rule of law seriously.

If anyone obstructed justice, lock ’em up. If anyone leaked classified information, lied under oath or lied to an investigator, lock ’em up. I have no problem with that. Republican or Democrat, if you leak, lie or obstruct, you should go straight to jail, do not pass Go.

But what does this have to do with Trump?

The President cannot leak information; he’s the President and Commander-in-Chief. He decides what stays classified and what get passed to other nations. The president can order the FBI to stop an investigation anytime he wants. The director of the FBI reports to the attorney general, who reports to the president, who is elected by the people and empowered by the Constitution to run the executive branch.

If the president wants to stop an investigation or fire the director of the FBI, that’s his prerogative. Sorry, you may not like it, but it’s not a crime.

I’m not saying the president’s behaviour has been good. Trying to intervene in the FBI investigation of Michael Flynn was dumb.

Trump’s associates have been even dumber.

-Michael Flynn was dumb to lie to Vice President Pence.

-Jared Kushner was dumb to omit meeting with Russians on his security clearance Form SF 86. (When I did my Form SF 86, I even included my Polish cleaning lady in the “foreign contacts” section. Somehow, Kushner left out the Russian ambassador.)

-Attorney General Jeff Sessions was dumb when he lied to Congress about his meetings with the Russians.

Dumb and dumber.

But Flynn, Kushner and Sessions are not the President.

They may have some legal problems, but Trump doesn’t. Sorry, but there are no grounds for impeachment, no grounds for obstruction and not one shred of evidence that Trump colluded with Russians to affect the U.S. election. Trump’s judgment may be flawed, but legally his hands are clean.

So what’s going on here? Why the feeding frenzy in the media? Why the drumbeat of allegations from the Congress?

The answer is simple. Democrats and a good number of Republicans oppose the Trump agenda. They don’t want tax cuts; they want tax increases. They don’t want a Wall; they want open borders. They don’t want to repeal Obamacare; they want to expand it. They don’t want more military spending; they want less.

Trump’s opponents know his agenda is popular and theirs is not. That’s why he won the election and they lost.

But they have a Plan B. They can throw the government into chaos so that nothing gets done. If nothing gets done, they win because they like the status quo. All of the talk about Russians, impeachment and obstruction has nothing to do with the substance of those charges. It has to do with paralyzing the government, running out the clock and going home before anything gets done.

I used to be a registered lobbyist for a major investment bank. (My wife hates it when I admit this, but it’s true.) I ran a large Washington office and had some of the savviest ex-Hill staffers reporting to me. I spent two–three days a week in Washington meeting with members or their staffs and going to fundraisers. I saw how the sausage was made, and I even made some myself.

Once I wrote a grandfather clause for my bank, ripped it off the printer and rushed it to the Senate legislative hopper with minutes to spare before a filing deadline. Of course, the “deadline” was known only to a few insiders, so we got to write the law while others were blindsided. Not a pretty sight, but that’s how things roll in Washington.

Trump’s the new kid on the block. He has no idea what just hit him.

Ultimately, the Washington insiders can’t impeach or indict Trump. But they can stop his agenda in its tracks.

What does this have to do with your investments? A lot. The stock market is priced to perfection based on the Trump reflation trade of tax cuts, infrastructure spending, fiscal stimulus and Obamacare repeal. What if none of this happens?

And what if the failure of the Trump agenda becomes apparent around the same time the economy is hitting the brakes because of Fed rate hikes and balance sheet normalization?

The stock market will go into freefall as it re-prices for a new reality. Stocks and the dollar will fall. Bonds and gold will soar. I expect gold to have an extremely strong second half of 2017.

How Gold Gets to $10,000 From Here

I’m very impressed with recent gold action because it’s holding its own in the face of an impending rate hike.

Gold pulled back last week, but that’s nothing major. The fact that it hasn’t fallen further tells you there are good fundamentals behind it, independent of the threat of a stronger dollar.

To recap, gold pulled back last week for a couple of reasons…

First, the furor about Trump’s presidency has quieted. Former FBI director James Comey’s long anticipated congressional testimony wasn’t the grand slam Trump’s opponents wanted, and now impeachment is off the table.

Second, the European Central Bank indicated it could soon begin monetary tightening by raising interest rates or easing back on its bond buying, which is a form of tightening.

Also, $4 billion of gold futures were dumped on the market last Wednesday, which sent prices lower. That’s another example of manipulation in the paper gold market, which I’ve written about before.

Now, the Fed is set to raise interest rates just two days from now, 14th June 2017. But I believe the Fed is preparing to raise into weakness and will have to reverse course later this year. Last week I referred to the Fed’s tightening as a “kamikaze mission.”

Gold sees what’s coming next, which is either a recession or something close to it by the late summer.

At that point, the Fed will have to reverse course. They’ll do this through “forward guidance” that signals there will be no rate hike in September.

What happens to gold then?

It’s going to go higher again, because the Fed will cheapen the dollar, and that’s very bullish for gold. So I expect gold to take off and finish the year very strongly. It could challenge $1,400.

Now, as many of my readers know, my long-term forecast is for $10,000 gold. We’re obviously not there now.

So how do I arrive at $10,000 from today’s prices?

I never give any forecast without giving the analysis behind it. Anybody can make a prediction. But if you don’t have the analysis to back it up I’m not interested.
So let’s go through the math, because there is a solid mathematical basis for $10,000 gold…

It’s actually the implied non deflationary price of gold under a gold standard. The combined M1 money supply in the world is about 24 trillion dollars. That includes the United States, China, the Eurozone and Japan. Those four entities combine for over 70% of global GDP.

Now, the official gold in the world is about 33,000 tons. That’s not counting private gold, because private gold is not part of the money supply.

So if you wanted to restore a gold standard, how much gold do you need to back up the money supply? My estimate is about 40%.

Historically, central banks have run successful gold standards with less backing. In the 19th century, for example, the Bank of England only had about 20% gold backing. In most of the 20th century, the U.S. had 40% gold backing.

I use the higher number, 40%, because I think a higher number might be needed to restore confidence in event of a collapse. The point is, 40% is a debatable, but reasonable figure.

Many people say there’s not enough gold to support the money supply. That’s one of the objections to gold standard. But my answer is that’s nonsense. There’s always enough gold to support the money supply. It’s a question of price.

Now, if you back 40% of the $24 trillion of money supply with the amount of official gold, it implies a gold price around $9,000 an ounce. But I predict $10,000.

So how do I arrive at $10,000 an ounce?

That’s because I expect central banks to print a lot more money by the time this issue comes to a head. So, by the time the printing presses stop running around the world, that $9,000 number will likely be in the range of $10,000.

The point is, $10,000 an ounce is not pie in the sky. It’s not a number I pulled out of a hat to get headlines. It’s the actual mathematical implied non deflationary price of gold.

If you reintroduced a gold standard at a lower price, it would be deflationary. They’d have to reduce the money supply in order to bring it into alignment with the price of gold.

So I expect $10,000 is where gold will have to be, given the amount of official gold and the projected amount of printed money to give it 40% gold backing.

It’s rooted in history and sound monetary management. It’s rooted in simple mathematics. If anything, the number’s probably going to go higher. A year from now, I might have to revise that $10,000 figure even higher.

This is important because gold maintains a prominent place in the international monetary system, despite what elites say.

If gold is not money, if gold is not part of the monetary system, if gold is just a commodity that people trade, my analysis wouldn’t apply. But I believe that gold is money, and it always has been.

Gold has always been at the base of the international monetary system. To a certain extent it still is, whether or not central banks or the elites want to acknowledge it.

If gold was irrelevant, why does the U.S. have 8,000 tons? Why does the IMF have 3,000 tons? Why does Germany have 3,000 tons? Why has Russia tripled its gold supply in the last 10 years? Why has China more than tripled its gold supply in the last 10 years?

Why are they all hoarding and buying gold if it has no role in the monetary system?

The answer of course is that it does, but the monetary elites would just as soon not talk about gold.

If you had the power of a central bank, why would you want gold to be part of the equation? It takes away their freedom to print money. Nobody kind of gives up power voluntarily, but they many not have a choice. A monetary system anchored to gold might be required to restore gold in event of another financial collapse.

The next question is, what’s the catalyst that could send gold soaring from today’s levels to $10,000 an ounce?

There are several potential catalysts.

It goes back to the avalanche metaphor I’ve used many times. Once enough snow builds up on the mountainside, it becomes unstable. At some point one snowflake will be the trigger that creates an avalanche.

Do you blame the snowflake or do you blame the instability of the system? The answer is you blame the instability of the system. One particular snowflake may have caused it, but the instability of the system is the real cause.

The current monetary system is unstable, the snow is piling up, and any number of snowflakes could trigger the avalanche. It’s hard to know exactly which one will be responsible, but it could be a geopolitical shock.

Middle East tensions are rising to dangerous levels once again. Last week witnessed a terrorist attack on the Iranian parliament building and a shrine to Iran’s revolutionary leader, Ayatollah Khomeini. ISIS claimed credit for the attacks, which killed up to 13. Tehran came short of blaming Saudi Arabia directly, but it holds the Saudis responsible for sponsoring ISIS. Iran has vowed revenge.

That’s one example, but there are many others.

North Korea continues testing ballistic missile tests and developing its nuclear program. The State Department has said the U.S. is prepared “use the full range of capabilities at our disposal against this growing threat.”

The South China Sea is also another hotspot with rapidly rising tensions. One incident can easily escalate. There are many other geopolitical flashpoints that could trigger a major international crisis.

Another triggering snowflake could be a natural disaster. Or it could be a political earthquake. Last week’s elections in the U.K. have generated a cloud of uncertainty about the future of Brexit. German elections will be held in October, which could also have great implications for the future of Europe.

The bottom line is there are plenty of potential geopolitical shocks that could threaten the current system, in addition to existing concerns about a stock market collapse or debt crisis.

The time to prepare is now, and one of the best ways to prepare is with gold and select gold miners that could soar by multiples of increases in the physical price.

Regards,

Jim Rickards

[Freeman_KParticipant 3524]

I don’t know exact number for gold but it is probably similar to silver in terms of % of trades with actual physical settlement which is for silver around 0,5%. In other words, 99,5% of trades are just bits of zeros and ones being pushed around.

EFTs completely skew the gold and silver market and big shots (central banks, commercial banks, hedge funds, governments, other stakeholders) all have vested interest to keep prices depressed and fiat fiesta going on.

I see gold and silver as amazing store of value, you can get it by minimal margin over production cost with very low risk of prices going down but once the 99,5% of bits pushers wants physical delivery gold and silver will get you true wealth. There is no doubt in my mind that there will be a day where you will be able to buy balance sheet of FED or ECB with 1oz gold, only question is if i will live long enough to see this.

The choices we make, not the chances we take, determine our destiny

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