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Park Avenue Numismatics
5084 Biscayne Blvd, Suite 105
Miami, FL 33137
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Is Gold Cheap at $2000 an ounce?

Wednesday, October 14, 2020

Gold last traded at $1,900 an ounce. Silver at $24.19 an ounce.

NEWS SUMMARY: Precious metal prices rose Wednesday on bargain-hunting, rising inflation and a falling dollar. U.S. stocks struggled as traders pored through another batch of corporate earnings and looked for clues on further coronavirus aid.

Doug Casey's International Man---"What lies ahead for the US economy is not a V- or a W- or an L-shaped recovery but a long, downward-inclined staircase which could lead to an abyss. With our current trajectory, that is not only a possibility but the most probable outcome. Barring dramatic changes to monetary and fiscal policies - the US dollar would not only lose its status as the world's reserve currency but would more than likely meet the fate of the Continental....Is Gold Cheaper at $2000 an ounce in 2020 than it was at $35 in 1971? Fundamental to this comparison is the recognition that gold is money and that the Fed's notes that circulate today have value only because they represent a claim against money....If we compare the money supply ratios M1-2020 / M1-1971 or M2-2020 / M2-1971, we can see that these are up about 30 times. Gold prices, on the other hand, are up about 60 times, so it looks relatively fairly valued. But what this comparison ignores are some critical differences between then and now...Between 1971 and 1981, the money supply in the US doubled...M1 has grown by about 35% in the last few weeks. When Paul Volcker set short-term interest rates at 20%...Reagan unequivocally backed him. Compare that to today, in which Trump threatened to remove Powell for attempting to maintain interest rates at only 2%. The US economy today is floating on a number of asset bubbles - equities, housing, and bonds. All these bubbles not only need ultra-low interest rates, but they also need continuous infusions of capital to prevent them from bursting. If we account for these factors, one could make a rational claim that gold at $2,000 an ounce in 2020 is cheaper than $35 an ounce in 1971....M1 today is about $5 trillion. If this were to be backed 100% by gold, then the 261.5M oz. of gold held by the US government would have to be valued at about $20,000/ounce or about 10x the current price. Depending on the various combinations of percentage backing and M1/M2 for our calculations, we could get a multiple of anywhere between 4 and 30x....Gold prices today mean a whole lot more than just a number. They indicate a tumultuous future of monetary breakdown with tremendous social and economic upheavals...The recent breakout in the price of gold is just the beginning. Gold is set to skyrocket in the months ahead."

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