Around the Campfire: Bedtime Reading

The annual In Gold We Trust Incrementum report, the latest of which has just been published, is always essential reading, even at 346 pages. Better still – it’s free! It doesn’t make for comfortable reading, however; one of its concluding remarks states “in our opinion, the financial and monetary system is now in a state of permanent stress, just short of burnout”.

But for anyone who wants to be forewarned and forearmed, it’s a must-read. I’ve made some time this week – in between fielding questions for our now 80% funded, crowdfunding campaign, with Seedrs in the UK and Republic in the US – to sample this compelling report, which goes far beyond gold.

This year’s issue, by Ronald-Peter Stöferle and Mark J. Valek, is no exception – not least because (unlike so many gold commentators) it sticks its neck out and makes a price forecast – the “conservative baseline scenario” gives a price target of $4,800, without “any extraordinary inflationary tendencies”, by the “end of the decade”. Which, if it happened, would be a rise of around 140% from today, or a gain of more than 15% a year. “If the decade was plagued by stronger inflation, a price of $8,900 could be expected by the end of the decade…the risk of inflation is growing visibly”, says the report.

The report reminds us that this year is the 50th anniversary (the ‘golden wedding’) of President Richard Nixon’s decision finally to sever the link of the US Dollar from gold, meaning the greenback was no longer convertible into bullion. The Dollar became a free-floating currency, measurable only by comparing it to other currencies. But only in December 1974, when President Gerald Ford signed new legislation, could Americans freely buy and trade gold, for the first time in more than 40 years.

The gold price exploded by 385% between the end of 1974 and 1980; gold has had in the past 50 years a compound annual growth rate of some 8%.

Since 1971, US government spending has positively exploded, as successive governments have been able to create fiat currency without being limited to how much gold sat in the national coffers. The US national debt is now more than $28 trillion and the national budget deficit greater than $3 trillion. The US now has a debt-based monetary system. As the report says, “central banks can create money without any restrictions and are increasingly making use of this privilege… Ultimately, the public’s trust in unbacked currencies stands or falls on whether central banks do not abuse this money-creation privilege”.

The report argues that “a profound change is taking place before all our eyes, a monetary climate change”. It asserts that “global fiat money is the convention of today. Gold backing is even forbidden in the Articles of Agreement subscribed to by all members of the International Monetary Fund”.

Trust in fiat currencies, including the Dollar, is fading, which is one reason why alternatives like cryptocurrencies and increasing, even with Millennials, gold, have become so popular. But governments know that control over money is the main source of their power.

China has banned cryptocurrency mining; one province has made it possible to ring a telephone hotline that people can use to inform on suspected mining units. In the US, financial authorities are preparing to take a more active role in regulating cryptocurrencies. Governments everywhere are planning to introduce – or in China’s case are introducing – their own Central Bank Digital Currencies, which ultimately aimed at driving private cryptocurrencies into the ground – and maintaining their control over the money we can use.

In Gold We Trust – Glint is putting flesh on those bones. With Glint you have gold-as-money at your fingertips. Gold of course may go down as well as up in value, but governments cannot spin more gold into existence – unlike Dollars, Pounds, Yen, or other fiat money. That gives me some comfort – it enables me to trust something.

Until next week,

Jason