News Note: Jim Rickards on Gold Soaring to All Time US Dollar High Over $1921 - Ray Dalio on US Dollar

This is a news note due to events unfolding this Sunday evening. At the time of this writing, gold has clearly gone well above the old all time high price in US dollars at around $1921. Right now, spot gold is quoted on Kitco just above $1930 per ounce.

Earlier today, Ray Dalio issued comments on Fox Business  about his concerns over how all these current events may impact the US dollar and economic stability. He specifically expressed concerns about the "soundness of our money" (see excerpt below).

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"The biggest issue Dalio is worried about is "the soundness of our money."

"You can't continue to run deficits, sell debt or print money rather than be productive and sustain that over a period of time," Dalio said."

Go To Fox Business to find the full comments by Ray Dalio
(note- Fox Business does not permit direct links to articles - search for Ray Dalio)

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My added comments: Obviously, we have a lot of potential stressors going on in various markets alongside a pandemic, the economic fallout from a pandemic and now also geopolitical tension. It pretty much goes without saying that readers need to monitor events closely with all this going on at the same time. I quickly asked Jim Rickards if he would like to offer some thoughts on the events we are seeing tonight. He kindly replied with the email comment below for readers here:

"This new price spike emerged in Asian trading on July 27 before London or New York had opened. Given the deteriorating state of U.S.-China relations and the potential resort to financial warfare, including the possible seizure of China's Treasury note holdings as compensation for victims of China's criminally negligent handling of the initial outbreak, it could well be the case that China and its people are flocking to gold as an alternative to dollar-denominated holdings such as Treasuries."  - James Rickards    (7-26-2020 10:30 pm cst.)


Added note on Jim Rickards - Jim has a new book coming out in October with an update on his most recent analysis as to where he sees things headed. Pretty sure this will be another best seller.

Kitco News - Gold Price Makes History, Analysts Still Looking for More

Below is the Kitco quote at 10:18 pm central standard time. Silver also sharply higher.

Metals	Date	Time (EST)	Bid	Ask	Change		Low	High
GOLD	07/26/2020	23:18	1937.10	1938.10	+35.80	+1.88%	1899.60	1942.60
SILVER	07/26/2020	23:18	24.09	24.19	+1.38	+6.08%	22.66	24.29

Added note 7-28-2020: Goldman Sachs Says Gold Spike Puts Dollar's Reserve Status in Question (thehill.com) - excerpt below:

"A record high price for gold, known as the currency of last resort, is raising questions about the U.S. dollar's future as the world's reserve currency, according to a Goldman Sachs research note published Tuesday."

Ray Dalio on Monetary History and Where We Are Now

Recently we featured an article by hedge fund manager Ray Dalio that took a deep dive into how the purchasing power of fiat currencies compares over time versus goods and services, stocks, debt, and gold. I got quite a bit of positive feedback that his information was helpful. This article by Ray Dalio was the most recent article in a series that takes an even deeper dive into history and looks at the rise and fall of nations, monetary systems and currencies. It also talks in depth about how history tends to move in both short term and long term cycles. 

Ray Dalio says he feels we are near the end of a long term debt cycle and also possibly the monetary system we have known for most our lives. Since that is exactly what we watch for here on this blog, below I have linked to the entire series of three articles with an excerpt from each article to provide a feel for the issues discussed. I will add this post to our market place of ideas for monetary system reform. While Mr. Dalio does not offer a specific proposal for reform or for a new monetary system, he does discuss many of the factors that historically have led to this kind of major change. Given his career and resume, I felt his articles deserve to be added to the marketplace so that readers can easily find them there if desired in the future. Any underlines below I added for emphasis.

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The Changing World Order - Chapter 1 - The Big Picture in a Tiny Nutshell

Where We Are Now

"As previously explained, the last major period of destroying and restructuring happened in 1930-45, which led to the new period of building and the new world order that began in 1945 with the creation a new global monetary system (built in 1944 in Bretton Woods, New Hampshire)and a new American-dominated system of world governance (located the United Nations in New York and the World Bank and the International Monetary Fund in Washington, DC).  The new American world order was the natural consequence of the US being the richest country (it then had 80% of the world’s gold stock and gold was then money), the dominant economic power (it then accounted for about half of world production), and the strongest military power (it then had a monopoly on nuclear weapons and the strongest conventional forces).


It is now 75 years later, and we are classically near the end of a long-term debt cycle when there are large debts and classic monetary policies don’t work well for the world’s reserve currency central banks.  This is happening as we are simultaneously in a deep economic and debt contraction that is producing income and balance sheet holes for people, companies, nonprofit organizations, and governments, while politically fragmented central governments are trying to fill in these holes by giving out a lot of money that they are borrowing.  Central banks are helping them do that by monetizing government debt.  All this is happening at the same time that there are big wealth and values gaps and there is a rising world power that is competing with the leading world power in trade, technology development, capital markets, and geopolitics.  And on top of all this, we have a pandemic to contend with.


At the same time, we have great human capital and thinking technologies that can help us see how to best deal with these challenges and do the inevitable restructurings well.  If we can all deal with each other well, we will  . . . ."

Please click here to read the full article

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The Changing World Order - Chapter 2 - Money, Credit, Debt, and Economic Activity

"Because what most people and their countries want the most is wealth and power, and because money and credit are the biggest single influence on how wealth and power rise and decline, if you don’t understand how money and credit work, you can’t understand the biggest driver of politics within and between countries so you can’t understand how the world order works.  And if you don’t understand how the world order works, you can’t understand what’s coming at you. 

For example, if you don’t understand how the Roaring ’20s led to a debt bubble and a big wealth gap, and how the bursting of that debt bubble led to the 1930-33 depression, and how the depression and wealth gap led to conflicts over wealth all around the world, you can’t understand the forces that led to Franklin D. Roosevelt being elected president. You also wouldn’t understand why, soon after his inauguration in 1933, he announced a new plan in which the central government and the Federal Reserve would together provide a lot of money and credit, a change that was similar to things happening in other countries at the same time and similar to what is happening now.  Without understanding money and credit, you wouldn’t understand why these things changed the world order nor would you understand what happened next (i.e., the war, how it was won and lost, and why the new world order was created as it was in 1945), and you won’t be able to understand what is happening now or imagine the future.  However, by seeing many of these cases and understanding the mechanics behind them, you will be able to better understand what is happening now and what is likely to happen in the future."

Please click here to read the full article

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Finally, here is the link to our previous article featuring his article comparing the purchasing power of fiat currencies versus debt, stocks, goods and services, and gold over time.

Ray Dalio Authors Article on Gold and Currencies

"As previously explained, there is a real economy and there is a financial economy, which are intertwined but different.  The real economy and the financial economy each has its own supply and demand dynamics.  In this section we will focus more on the supply and demand dynamics of the financial economy to explore what determines the value of money."

Printing and Devaluing Money is the Easiest Way out of a Debt Crisis

"While people tend to think that a currency is pretty much a permanent thing and believe that "cash" is the safe asset to hold, that's not true because all currencies devalue or die and when they do cash and bonds (which are promises to receive currency) are devalued or wiped out. That is because printing a lot of currency and devaluing debt is the most expedient way of reducing or wiping out debt burdens."

. . . . 

"Since 2000, we have seen a more gradual and orderly loss of total return in currencies when measured in gold, consistent with the broad fall in real rates across countries during those decades."

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My added comments: The only comment I can add here is that Ray Dalio in these articles talks about many issues that we have covered here on this blog for years and also emphasizes that understanding these issues is very important for each of us. This is also what we have said here for many years.

Added note: Ray Dalio has followed up the three articles linked above with another one that talks about The Big Cycles Over the Last 500 Years that you can find here. He also added this new article on his thoughts about the most recent turmoil in the US.

News note: Ray Dalio Authors Article on Gold and Currencies

Lately, I notice a number of "mainstream analysts" talking more about the idea that the fiat currencies we use now are perhaps on shaky ground and that gold is returning to investor favor. Hedge fund manager Ray Dalio offers this lengthy narrative on devaluation of fiat currencies and the role of gold as a hedge for investors. Below are a few excerpts from the article. Any added underlines are mine for added emphasis.
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The Changing Value of Money - Ray Dalio

"As previously explained, there is a real economy and there is a financial economy, which are intertwined but different.  The real economy and the financial economy each has its own supply and demand dynamics.  In this section we will focus more on the supply and demand dynamics of the financial economy to explore what determines the value of money."

Printing and Devaluing Money Is the Easiest Way out of a Debt Crisis

"While people tend to think that a currency is pretty much a permanent thing and believe that “cash” is the safe asset to hold, that’s not true because all currencies devalue or die and when they do cash and bonds (which are promises to receive currency) are devalued or wiped out.  That is because printing a lot of currency and devaluing debt is the most expedient way of reducing or wiping out debt burdens."

. . . . . 

"In comparison to the others, printing money is the most expedient, least well-understood, and most common big way of restructuring debts.  In fact it seems good rather than bad to most people because it helps to relieve debt squeezes, it’s tough to identify any harmed parties that the wealth was taken away from to provide this financial wealth (though they are the holders of money and debt assets), and in most cases it causes assets to go up in the depreciating currency that people use to measure their wealth in so that it appears that people are getting richer.

You are seeing these things happen now in response to the announcements of the sending out of large amounts of money and credit by central governments and central banks."

. . . . .

"Most people don’t pay enough attention to their currency risks.  Most worry about whether their assets are going up or down in value; they rarely worry about whether their currency is going up or down.  Think about it.  Right now how worried are you about your currency declining relative to how worried you are about how your stocks or your other assets are doing?  If you are like most people, you are not nearly as aware of your currency risk and you need to be."

Please click here to read the full article by Ray Dalio

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Added comments: In this article Ray Dalio goes on to compare the purchasing power of fiat currencies over time versus debt, consumer goods, stocks and versus gold. When it happens, significant devaluation of the currency of a nation historically eventually leads to major monetary system change. This is a very in depth exploration of these issues that readers here would likely find of interest.

Reset Watch Note: Jim Sinclair and Bill Holter Believe a "Reset" Has Now Begun

Anyone who has followed the issues that we do here on this blog for a long time knows the name Jim Sinclair. Jim is well known for his ability to do amazingly accurate long term price forecasting in the gold market. He famously called the top of the first huge bull market in gold back in the early 1980's. More recently (in this century) he incredibly made a long term gold price forecast of $1,650/oz way back when the price of gold was trading well below $500/oz. in the early 2000's. Gold hit that and more within his time frame.

In collaboration with Bill Holter (also hailing from Texas), they have been very consistent in the view that the present monetary system is unsustainable long term due to the combination of too much overall debt along side too many high risk derivatives that interconnect all through the banking and financial system 

In this very recent interview with Greg Hunter, they repeat the warning they have been issuing now for many years and are going on the record to say they believe that this recent sharp move up in the price of gold is a signal that the first "reset" of the present system they have long predicted is now starting up. Jim Sinclair says the events that he and Bill expect to unfold during this reset process will be completed by 2025. 

Below I have pasted in the video of the interview. 

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Bullet points from the interview:

- the present system is unsustainable due to too much debt and risky derivatives
- Democratic candidates for President are basically calling for a debt "jubilee" reset
- central banks are cornered and running out of ammunition to stave off a reset
- the recent sharp move up in gold is an early warning signal
- there will be two resets higher in the price of gold over the next few years
- the events that are part of the reset process will unfold by 2025


Added note 7-17-2019: Ray Dalio describes his own version of a coming reset which he labels a "paradigm shift"
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My added comments: The conditions we all live in these days are not easy to get a handle on. Trying to make a prediction about anything happening within a certain time frame is extremely difficult to do. I will say that having followed Jim Sinclair for a long time that he has done a pretty good job of long term forecasting, especially in terms of predicting price levels for gold many years in advance.

Some people who were alert and alarmed when the 2008 financial crisis arose have since gone off alert because the enormous coordinated effort by central banks around the world to stave off a failure of the present system seems to have accomplished at least that much up to now and the system seems stable to them now. A decade has passed since that last major crisis.

In this new interview, Bill and Jim offer a reminder that by no means have the problems and issues that triggered the big 2008 crisis been permanently solved. Instead, they feel that the unusual and unprecedented monetary stimulus actions that were taken have at best simply managed to push a day of reckoning off into some unknown future date. Jim Sinclair thinks that date will come before the year 2025. Readers should watch the video to see why he believes this.

If you want more evidence that even those who were directly in the heat of battle in the 2008 crisis don't feel like all the problems are solved and have some similar concerns, please go back and read our articles (first one here, followup here) from earlier this year that feature Mike Silva. Mr. Silva was the Chief of Staff to Tim Geithner at the NY Fed. Near the end of his article describing how it was to deal directly with the 2008 crisis, Mr. Silva offered this comment:

"Once a financial mob panics, the only thing that will end that panic is for a central bank with a large billy club to show up and announce: "Break it up everyone. Go home. This crisis is over." Unfortunately, the Dodd Frank Act (DFA) has crippled the Fed's ability to play this role. I guarantee that curbing the Fed's emergency authority will come back to haunt us."

Mr. Silva offered this answer to his own question about whether we will see another major financial crisis:

"Absolutely. As long as we have a financial system, we will have financial crises. The only question is how often and how severe. Personally, I think a crisis is likely to happen sooner rather than later because of the large number of possible crisis triggers that are currently being squeezed." (see page 15)


Mr. Silva also stated in his article (see page 14) that the system did come very close to failure during that 2008 crisis and he was right in the middle of it at the NY Fed at that time:

"This was a terrifying moment. Central banks know how to support individual institutions, but no central bank had ever tried to support entire markets. And that was what we had to find a way to do."

My point here is, that while none of us can know if or when the next big crisis may strike, it is beyond foolish to assume it can never happen. It is also foolish to make no effort of any kind to understand these important issues and try to make some basic simple preparations in case another huge crisis does one day emerge. That's just common sense like buying auto insurance. You hope you never need it, but you would not think of not having it. In fact, it is deemed by society as so important for people to have it that it is illegal to drive without having it. Surely, the same prudence should be used in relation to the issues we cover here that might some day actually lead to some kind of major "reset" to a new financial and/or monetary system. 

If a major "reset" to the present system does come, we would hope for a gradual change under controlled conditions. But we can not rule out a disorderly reset resulting from a sudden, unexpected failure of the present system. We have documented numerous system risk warnings from officials at the BIS, IMF, and central banks here over many years. Over time some risks decrease, others increase. But risks never completely go away. The goal here is to monitor events, report what actually happens over time, and document various ideas on how to "reset" the system should that be necessary at some point in the future.

Gold Wars

Gold is not the main focus of this blog although it is an important signal we monitor that can indicate that something important may be happening the in the monetary system. Gold has been in and out of the official monetary system for a long time so people do view it more like money than just a commodity like zinc for instance.

Gold tends to generate a lot of emotional reaction from people who love it or who seemingly hate it for various reasons. There are all kinds of articles and blogs that discuss gold and its love/hate relationship with the monetary system. For instance, the same people (central banks) that tend to disparage gold as something out of place in a modern monetary system also happen to hold tons and tons of it in their vaults. The tension that clearly exists when gold is talked about as an alternative to the currencies of the central banks is really there and there are many places that cover those issues.

What I would like to focus on for this article is to look at some new developments in the gold space that may indicate that interest in gold as some kind of alternative payments system might be increasing. Below are some thoughts on it.

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Gold has always been something people around the world look to when there are signs of potential trouble in the world. The most recent example is the flare up between the US and North Korea. When the rhetoric ramped up to a level where people began to pay attention and think an actual shooting war might be possible, gold immediately reacted. People like Ray Dalio were instantly suggesting everyone should own at least 5-10% of a portfolio in gold as an insurance hedge (something we have long talked about and people like Jim Rickards have consistently recommended). Readers should understand that no where near that allocation to gold exists currently and if fund managers and investors actually followed that advice, the demand for gold would explode far above the amount that is available at any given time and the price would explode along with it.

The potential for something like this to happen is always out there even with gold no longer used like money as part of the monetary system. Now we have private sector initiatives popping up that are actually trying to modernize gold in a way they hope will encourage people to use it more like money again and not just as an insurance hedge or long term store of wealth. Goldmoney was the first to enter this space and tries to make it easier to use gold in your account with them like money to spend in commerce. This is how they describe their debit card on their web site:

What is a Goldmoney Mastercard® Prepaid card?

The Goldmoney Mastercard® card is a prepaid card available in several currencies that can be linked to verified Full Holdings. You may sell metals to currency within your Holding to load a prepaid card and use it anywhere Mastercard is accepted.

Recently, BullionCoin launched with a more extensive plan to try and get a 100% gold (and silver) backed cryptocurrency to be used in commerce. They do this by offering an incentive to merchants to accept BullionCoin in payment for goods and services and will also offer the end user a debit card for purchases. To the end user it will work the same as any debit card they already use at merchants that accept BullionCoin for payment. It appears that perhaps the first shot in possible Gold Wars may have been fired at BullionCoin as the ABX announced it was pulling out of its partnership with BullionCoin based for one reason on the potential for a lawsuit filed by a "competitor" for "alleged infringement of intellectual property rights" (BullionCoin fired back by denying any lawsuit exists).

Now we learn that coming up in the fourth quarter of 2017, another gold linked payments system called GlintPay plans to launch as well. The article appearing in TechCrunch on Glint had this to say:

"However, I understand that Glint will offer a frictionless way to both store and spend your money in gold, including at the point of sale, just like a regular local currency. The bigger picture is that gold historically has been a better storage of value than any government-created currency, and therefore — with the aid of technology — is (arguably) a good candidate for an alternative global currency. The startup has already been authorised and is regulated by the U.K.’s FCA, under, presumably, an Electronic Money Institution license."

So we are clearly going to have competition now in the gold backed payments system space with blockchain also entering the picture for some of the products. This Bloomberg article lists some more coming soon that will be based on blockchain. We can expect that these private ventures will compete aggressively for the existing base of consumers who like to own gold and silver even as they all also try to expand that base of people with global marketing efforts. This is where we may see some additional Gold Wars in the future as we have already seen with BullionCoin. Whoever can attract substantial institutional support may gain an advantage in these wars as promotion and marketing helps influence people to try something new.

It will be interesting to see how these new private ventures impact the gold market and how successful they are in attracting broader adoption of gold backed currency for use like money in regular commerce. They will all be fighting legal tender laws and probably tax reporting rules that will be obstacles to overcome in many countries. 

But if they are successful in bringing in lots of people globally who are not currently interested in owning gold and silver, their impact on those markets could be significant as a new source of demand for physical gold and silver. This could be true  even if some of these products cannibalize from existing gold buyers. Right now it is estimated that just 1% of global capital is invested in gold. A seemingly tiny increase to just 2% is actually a huge increase in demand for the physical metal in relation to the available supplies from mining each year (which are starting to drop off). The same concept applies to silver. It bears keeping an eye on in the future as the Gold Wars heat up.

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Added notes: While no one can predict the future, this article on silver does make some good points about how it appears to be undervalued at this point in time. Silver is selling at a price not very much above what it costs to mine it and it looks like mine production may have peaked out and is starting to decline. Eventually the price of silver has to react to this situation or some mines will have to be closed which will speed up the decline in production. Meanwhile, demand for silver is likely to remain steady or increase in the coming years with nations like China in the middle of large programs to expand the use of solar energy. Also, any time demand for gold picks up as an insurance hedge, silver tends to benefit from that as well and is more affordable for the average person.

Treasury Secretary Mnuchin created quite a stir when he suddenly showed up at Fort Knox to seemingly check out the US gold stored there. This created an immediate renewal of the ongoing battle between those who believe that much of the gold supposedly held at Fort Knox has been sold off and those who say the physical gold is still there, but may have ownership claims against it on paper (has been swapped or leased). Of course, since the gold has not been audited for many years, no one can prove their claims one way or the other. It is somewhat odd that Secretary Mnuchin suddenly shows up for to do this photo op holding a gold bar. We won't speculate here because we leave that to others. The fact this week is that for whatever reason, the Treasury Secretary of the US showed up at Fort Knox to say "the gold is safe" for some unexplained reason.

Andrew Maguire surfaced again to do a new interview with King World News. In this interview he repeats that the 250 ton gold buy order he has talked about most of this year is still coming, but has been delayed past the date he initially expected. As we might expect, after the partnership between BullionCoin and the ABX fell apart, the credibility of Andrew Maguire is in question by many people who follow events in the gold market. All we can do here is report what happens. So far, the prediction of this large gold buy that is supposed to "reset" the gold price much higher has not materialized. The failure of BulllionCoin and ABX after much promotion of it by Andrew Maguire on his Twitter feed (see documented list of all statements made in 2017 here) does not inspire confidence. If such a large gold buy order does in fact show up and cause a much higher "reset" of the gold price, we will report that here. If it does not, we will also report that here. It seems there are all kinds of Gold Wars out there and discovering the truth is quite difficult. This is why we try to avoid speculation and report what actually happens.

In this new article, Jim Rickards says "Weird Things are Happening With Gold"

Here is this article as posted at Talk Markets.com.