Major Investment House States: Buy Gold Now
In the last few weeks, most large investment houses in the US, including J.P. Morgan and Goldman Sachs, have one after the other released recommendations to buy gold, accompanied with their predictions of extremely high target prices. Why is it so?
Here’s a bit of history. It’s relevant.
In 2003, Alan Greenspan, the Federal Reserve chair, decided to boost the economy by lowering interest rates to 1%. Almost immediately, the price of gold started rising. Within just three years, the price of gold doubled. After the market and real estate crash of 2008, the Federal Reserve started printing money (They called it “quantitative easing”) and lowered the interest rate to 0%. And the price of gold took off like a rocket with gold nearly tripling and silver going up 5 times until 2012. Do you see a pattern emerging?
What makes the price of gold rise
When the Federal Reserve is lowering interest rates, they are providing an incentive to borrow. In our monetary system, taking a loan creates money from thin air. Voila! This is an indirect way to add money to our money supply. A direct way of adding money to our money supply is when the Fed adds liquidity to the market or “prints money.”
When money is added into circulation, it dilutes the value of the money already in the system. Since the extraction of gold from the ground is done at a more or less steady rate—similar to the growth in population—and since gold cannot be printed, the money dilution created by the Fed will be reflected in the price of gold rising as more money will be fighting to buy the same amount of gold. This happens 100% of the time. It’s logical. It doesn’t fail. Heck, it will never fail. It’s a risk-free system to gain from monetary intervention and currency debasement.
Just this week, Goldman Sachs announced that now is the time to buy gold as a hedge against “currency debasement.” You can read it here.
Since 2003, the Fed’s monetary policy of printing money and lowering the interest rate has helped two very different classes of people: It helped the ultrarich by allowing them access to cheap money to inflate the value of their assets—call it socialism for the rich. On the complete other side of the spectrum, it helped the holders of physical gold by raising the value of their investment. The spot price of gold was $300 in 2003. Today, it’s $1,630. That is a return on investment that beats that of Warren Buffett’s Berkshire Hathaway. Take that, Buffett!
So, you may ask: “is it really that simple?” Well, yes. “So, why doesn’t my financial advisor tell me that?” Because they don’t deal with physical gold and they don’t make the same commissions, even when you buy gold ETFs from them. More about those Wall Street–manipulated paper certificates in another article.
How do I know if the Fed will continue printing money?
Over the last three months, the Federal Reserve has already added more liquidity to our system than after 2008. Add to this the $2+ trillion stimulus coming, and more money will likely be added over the next months. And then there is our $1-trillion-a-year ongoing deficit, which has to be covered somehow. Right now, central banks around the world are not buying US treasuries, they are actually selling, so the Fed will print more money for that too…
But if you are extra cautious, you want to ask yourself: Is that all the money that will be printed? If I want a truly historical return, like in the ’70s when the price of gold went up 8 times (just check the charts), what assures me that the Fed will print the price of my gold into the stratosphere?
When we’re looking into the future, we see serious issues. Our population is aging, which not only increases government expenses but also slows the economy—see the chart below.
The chart shows the inverse relationship between economic activity and our aging population. Millennials are entering peak earnings, but this will offset the effect of the aging population only slightly.
Healthcare expenses and pension payouts are rising. Tax revenue from payrolls is falling while our Medicare system is being overwhelmed by new beneficiaries. Social Security is essentially supporting people for decades, which it was never designed to do. According to some estimates, outstanding, yet unfunded healthcare obligations amount to $100 trillion, while Social Security is projected to need another $15 trillion over the next 75 years.
We can meet these spiking numbers by infusing cash and by raising the full retirement age to an age where very few people can enjoy the payouts. Aha! More money will be printed—and a lot of it. We’ll need to print tens of trillions to cover these obligations.
The price of gold will rise
If you agree with me and with my better-known colleagues at Goldman Sachs that the correlation between money printing since 2003 and the rising price of gold seems like a real thing, and if you agree that the only way our government can solve the issues brought on by the coronavirus pandemic and the aging population is by printing itself out of it, there is only one conclusion: The price of gold will rise and rise and continue to rise until the money printing ceases.
So, let’s bring it home. You have a portfolio with a portion allocated to gold. That portion will grow substantially. It has to grow. Not because you or I wish it to, but because the Federal Reserve must print money, which will raise the value of your gold. If one thing is sure in the next 10 years, it’s gold and silver. Ray Dalio and Goldman Sachs say it.
The problem with me giving you this advice is that it is given by a gold and silver “professional”. Am I stating self-serving advice? I’ll make it easy for you: Get protected with Gold and Silver with anyone. As long as you take action. Just do it. Be proactive. It’s so simple to protect your wealth in these horrible times, and I’ve heard from every single client that after doing it they felt better, safer. The Federal Reserve and our government’s actions will help boost the value of your gold holdings. It’s the first time they’ll be working for you. They have no other choice. I truly believe that you don’t have one either.
I wish you and your loved ones to be healthy and safe.
Joseph Sherman, CEO