We’re witnessing something truly perplexing, and it’s not just related to the stock market. While the dramatic fluctuations in the DOW provide thrilling viewing, they don’t concern us—after all, we sold our stocks quite some time ago.
Nonetheless, we remain captivated by the intense surges and alarming declines of the stock market. It’s almost impossible to look away. Over the past week, the stock market has undoubtedly become the finest reality show currently airing.
However, the stock market is simply a form of entertainment. The real significant events are unfolding in the realms of gold and U.S. Treasury prices. Take, for instance, Wednesday’s events: the DOW dropped 508 points, while gold briefly surpassed $1,800 per ounce, and 10-Year Treasury yields plummeted to 2.09 percent.
Gold, in this scenario, acts as a bet against government debt. The price of $1,800 per ounce signals a lack of trust in currency backed by debt.
As Treasury yields decrease, Treasury prices rise. Soaring Treasury prices reflect lenders’ confidence in the repayment of their loans. A 10-Year Treasury yield of 2.09 percent, when compared to gold’s $1,800 per ounce, presents a stark contradiction—a strong endorsement for debt-backed currency.
This juxtaposition of $1,800 gold and 2.09 percent Treasury yields is utterly illogical. It resembles water freezing on a warm summer day, winning the lottery without purchasing a ticket, a perpetual motion machine, or coasting uphill on a skateboard. Such occurrences simply shouldn’t exist.
So, what’s really happening?
Opinions vary widely based on who you ask. A broker at Edward Jones may claim gold is in a massive bubble and that Treasuries remain the safest investment. Conversely, a financial historian might argue we are witnessing the decline of the dollar reserve standard.
Which perspective holds true?
Time will reveal the answer. But to delve into the latter viewpoint and explore its implications, we present a guest essay from our friend Jeff Clark at BIG GOLD.
Enjoy,
MN Gordon
Economic Prism
When Buying Gold Becomes a Life-or-Death Question
In a recent interview, I was asked if I believed gold would reach $5,000 an ounce. My answer was clear: “No, I think it will go even higher.”
“You’re that optimistic?” was the follow-up.
“No,” I replied. “I’m that pessimistic.”
Consider the implications if gold were to soar to $5,000 an ounce and continue its upward trajectory. Such a scenario would likely indicate a market frenzy, but what kind of frenzy would it be? While greed might be a factor, I suspect a more profound reason would be at play—the same reason that motivates you to purchase gold even at $2,000 an ounce.
The necessity to buy gold will arise.
There are numerous reasons to consider owning gold right now. You may be concerned about global debt crises, consider it wise to emulate China and others who safeguard their savings with gold, or find compelling reasons in negative real interest rates. Some buy due to overwhelming demand outpacing supply, or out of fear of inflation or deflation.
However, most of these motivations lack one critical component: they have yet to become personal.
For many, the experience of escaping a war-torn nation, experiencing hyperinflation, or witnessing their currency’s sudden devaluation is still foreign. While seasoned investors may have profited from gold, most initially purchased it as an asset rather than a necessity born from desperation.
It might sound dire, but I believe it is not only possible but highly likely that we will all eventually feel compelled to acquire gold, regardless of the price, due to a swift drop in the value of the U.S. dollar.
How might this scenario unfold? Imagine heading to buy something only to realize you can no longer afford it—not because the price has skyrocketed but because your cash has lost its purchasing power. It’s a predictable reaction: feeling trapped and anxious, the urgency to seek an alternative takes hold.
This represents a typical inflationary scenario, yet is not a difficult leap from our current reality. Consider this:
Since the Y2K scare, the dollar has lost an astounding 25% of its purchasing power. Even with the meager interest earned in a traditional savings account, it doesn’t compensate for this loss. This breakdown is current—not related to the Federal Reserve’s inception or Nixon’s abandonment of the gold standard. It reflects a dramatic depreciation of your dollar-denominated savings today. Contrastingly, gold has not only preserved but also enhanced our purchasing power.
Now, envisage this reality accelerated. Instead of facing a 25% devaluation over 11 years, what if it occurred in just two years? Such rapid changes can materialize in a highly inflationary climate. Given the built-in repercussions for our currency and politicians’ consistent inability to navigate the issue, a day will come when you instinctively recognize—as you pay for milk—that your cash is a dwindling asset that can no longer fulfill basic exchanges.
In short, purchasing gold at $2,000 an ounce won’t stem from speculation that it might climb to $6,000; rather, you’ll buy it out of fear that the dollar will continue eroding its ability to meet essential financial needs, necessitating a substitute that retains its value.
No matter whether the dollar’s decline maintains its current trajectory or accelerates, one fact stands indisputable: it will persist. Allocating a portion of your savings to gold is imperative.
Eventually, I believe many will have an awakening regarding money that compels us to buy gold, even at prices that seem steep today. When that moment arrives, the focus won’t be on the gold price, but on the pressing need to secure a more dependable asset.
If I’m correct, $1,700 will not seem extravagant.
Sincerely,
Jeff Clark
for Economic Prism
[Editor’s Note: For many, $1,700 for an ounce of gold is a significant amount. However, Jeff has discovered ways to acquire gold and silver by investing just $100 a month, and he’s so impressed with the programs that he personally utilizes them. Explore his top two recommendations in the latest edition of BIG GOLD and begin building your gold and silver reserves to safeguard your savings against ongoing devaluation.]
Return from When Buying Gold Becomes a Life-or-Death Question to Economic Prism