by Doug Casey, International Man:
International Man: Recently, gold broke through the $1,400 barrier for the first time since 2013. What do you make of this?
Doug Casey: It’s long overdue.
The thing to remember here is that since the crisis of 2008, not just the US but all of the major governments in the world—the Japanese, the Chinese, the Europeans, and all the little countries too—have been printing up money hand over fist. Gold hasn’t really responded so far.
All that new money has gone into the stock and bond markets, and certain areas of the real estate markets. Now interest rates are once again down to their all-time lows, and about $13 trillion of bonds have negative yields—something that should be metaphysically impossible. Money is finally starting to filter down into commodities. All of which are extraordinarily depressed right now.
The recent move in gold has grabbed everyone’s attention. But all the commodities are going to move higher. There’s a lot of fear building up, and that always drives gold prices.
I’m bullish on gold. I don’t think this is a false start.
It last peaked in 2011 around $1,900. Gold is going back to at least its previous high, and that goes for all the other commodities as well.
International Man: You mentioned there’s a lot of fear building up. What do you mean by that?
Doug Casey: A lot of people are starting to recognize that in today’s world you don’t really own anything.
Stocks in your stock account are just another liability of the brokerage firm. If your broker goes bust, you’re out of luck for anything beyond the amount for which you’re insured. You’re just another unsecured creditor, like the broker’s landlord. You really don’t own the stocks in your stock account—at least in any secure way.
When it comes to commodities, the bust of MF Global under Corzine a few years ago proved that you really don’t own the money in your commodities account either. It used to be than an account with a clearing broker was sacrosanct. That’s no longer the case.
You don’t really own the money in your bank account, at least beyond the insured amount. The 2013 Cyprus crisis proved that. Instead of bailing out the banks, they were “bailed in” by customer accounts. The fractional reserve banking system, combined with a debt-heavy economy, guarantees there will be another wave of bank failures. Governments will follow the Cyprus model. Depositor’s funds are at risk.
More people are starting to realize that you actually don’t own any intangible assets in today’s over-financialized world. Security is an illusion.
That’s why there’s going to be a movement to gold. As I’ve said many times in the past, but it bears repeating, gold is the only financial asset that’s not simultaneously somebody else’s liability. It’s the “go to” asset in an unstable world.
International Man: The Fed capitulated earlier this year and ended its tightening cycle. The next stop seems to be more money printing. What does this mean for gold?
Doug Casey: Well, the more fiat money that’s created, the higher prices are going to go. That absolutely includes gold.
The big X factor is the huge amount of debt in the world, which is once again at new all-time highs. Mortgage debt, student loan debt, automobile debt, credit card debt, government debt, and corporate debt. The US dollar itself is a form of debt. It’s been this country’s major export for two generations now.
All that debt can be sustained with interest rates at 0% or 2%, but if—or rather when—interest rates eventually go up, a lot of that is going to be defaulted on. That will redirect people’s attention to an asset that can’t be defaulted on, such as physical gold.
International Man: If gold is merely a “tradition” as central banks like to pretend it is, why are central banks buying record amounts of it?
Doug Casey: Well, to start with, I’m always skeptical about the figures reported by governments. Not all central bankers are buying gold; it’s essentially just the Chinese and the Russians. Central bankers aren’t rocket scientists; they’re just government employees who’ve weaseled themselves into a position where they’re over paid, get to wear $1,000-dollar suits, and go to ritzy meetings. They have no understanding of economics, despite degrees from prestigious schools. They’ve been brought up on Keynesianism, and a lot of them are Marxists.
Central banks are really just engines of inflation. They really serve no purpose except to allow governments to extract capital from their populations indirectly by printing currency. As opposed to honestly—insofar as taxation is honest—by confiscating the money directly from citizens.