Reality Check
Jim Sinclair now predicts that gold will be at $50,000 sometime in 2020. This is all over the Web.
With gold at about $1330 an ounce these days, the price would have to multiply by a factor of 38 to reach $50,000.
Let me the be the first to say that this is not going to happen. I say this as a gold bug out of the early 1960's.
There are far better sources of both profits and income for investors than gold at $50,000 an ounce. Nobody is going to pay you or anyone else $50,000 for your Krugerrand.
If you can take four one-ounce gold coins, sell them for $200,000, pay your income taxes, and buy a debt-free investment house for $150,000 that will generate 10% per annum, why would you hold onto the coins? You would not hold onto the coins if you had 100 of them, or 300 of them. You would sell most of them. The population of the United States is going to go to 400 million people by 2050. These people will have to live somewhere. Why would you hold gold coins, when you could buy a debt free house just by selling four coins? Sit back and collect your rental income for the rest your life, and watch the value of your houses go up.
With housing, you get capital gains tax benefits. With gold bullion, you don't. You will pay twice the tax rate.
He says that hyperinflation is going to hit the United States before 2021. Not mere inflation. Hyperinflation. Yes, you have heard that before. You heard it in January 1980, when gold was at $840 for one day. Will people be paying 38 times what today's homes cost? Is the median price going to be $200,000 times 38? Do you really think the typical house will cost $7.6 million? If so, buy investment houses, not gold coins. You can buy homes with owner-financed debt. You can leverage your investment by at least ten to one. The renters will pay off the mortgages. Meanwhile, you can depreciate the homes. You can write off the mortgage interest payments as business expenses.
If hyperinflation is going to raise prices by 38 to one, get some leverage. Gold coins will not give you any leverage.
Mr. Sinclair needs to lie down, put a cool washcloth on his forehead, and take a nap. Senior moments happen to us as we get past age 70. We get over them. Usually.
Here is his position.
Renowned gold expert Jim Sinclair says financial calamity is just around the corner for America. Sinclair contends, "We are facing the annihilation of currency. We are facing the shift of America as the leading and most influential nation of the world to some form of banana republic. . . . If it wasn't for food stamps, we would be facing long lines of people waiting for free food." For gold, everything hinges on the U.S. dollar, and Sinclair says, "I think the dollar gets hammered. I believe we are headed for hyperinflation." One of the many black swans, according to Sinclair, is the possible abandonment of the U.S. dollar by Saudi Arabia. If Saudi Arabia stopped selling oil only in U.S. dollars, what would that do to the buying power of the buck? Sinclair says gasoline would be "$10 a gallon very soon, without a doubt."Sinclair predicts retirement funds and bank deposits are going to be taken by the government. How much of your money could you lose? Sinclair says, "In Cyprus, it was a total of 83%. . . . Cypress is the blueprint, and it's what we are going to experience here in the United States." Jim Sinclair, who has just accepted the position as Chairman of the Advisory Board for the establishment of the Singapore Gold Exchange, says, "The exchange will trade physical gold only and not future gold. . . . You have to make delivery." Meaning, there will be no naked short selling or manipulation of this new market. Sinclair says, "This will emancipate gold from the paper price." How high will gold go? Sinclair predicts, by 2016, "Gold will be $3,200 to $3,500 an ounce." By 2020, Sinclair predicts, "Emancipated gold will be $50,000 per ounce."
In April 2008, he predicted gold at $1650. That was a good call. Gold hit $1650 twice: going up and going down.
HYPERINFLATION
First and foremost, contrary to Mr. Sinclair's prediction, we are not facing annihilation of any major currency. There has not been an annihilation of any currency in any Western, industrial nation above the equator for two centuries, unless it has lost a major war. Germany's hyperinflation in 1921-23 was the result of Germany's loss in World War I. The same was true of Austria and Hungary. The reason why those forecasters who predict hyperinflation in the West appeal to this example is this: there are no other examples. They took place over 90 years ago. Nothing like this has taken place since.
If World War II did not produce hyperinflation in the United States, Great Britain, Canada, Australia, and New Zealand, why will today's crony capitalist crises create it?
He is saying that something that has not happened since the French Revolution's assignats in 1794 is going to happen before 2121. I have heard this forecast for 50 years.
But is not just the annihilation of the U.S. dollar that he is talking about. He is saying there be annihilation of all major currencies. This is necessarily saying there will be an annihilation of Western civilization by the end of 2020: the destruction of the division of labor.
Every nation today inflates its currency to hold down its dollar-denominated price in relation to the U.S. dollar. This is a technique of mercantilism: subsidizing exports through currency depreciation. The United States is where the world wants to sell. To say that only the dollar will collapse is to say that modern international trade will collapse. The whole world will cease inflating. The whole world will not sell to the United States. The most productive large economy on earth will become an unproductive, isolated banana republic in 2020.
He offers a hypothesis: Saudis might stop selling oil for U.S. dollars? I ask: What will they choose as an alternative? The yen? The euro? Why will those currencies and economies be better than ours? They surely aren't today.
Today, there is an international division of labor based on fiat currencies. A shift to an all-gold international currency could only take place after a complete collapse of all fiat currencies, not just the U.S. dollar. Between now and 2021, there would have to be a cessation of trade as well as domestic division of labor. This would mean the complete collapse of civilization. It isn't going to happen in 2020.
World War II did not cause this, but crony capitalism will. This in fact has never happened in human history: simultaneous international hyperinflation. But it's inevitable today, we are told. It will happen within seven years. This is the inescapable implication of Mr. Sinclair's prediction. I don't take it seriously. Neither should you.
A senior moment is not fatal. I am sure Mr. Sinclair will shake this off.
There can be major recessions. We saw this in 2008-9. There can be substantial losses of capital for the top 20% of wealth owners, who own at least 80% of the wealth. But central bankers are not going to inflate their domestic currencies, simultaneously, until all currencies to zero value. It has never happened in history, and it is not in the self-interest of central bankers to let it happen now. They will see that it is better to allow the boom-bust cycle to go back and forth once more in between now and 2020. David Stockman calls these "serial bubbles." That pretty well describes the process. It has worked just fine for crony capitalists ever since 1947. This will not change anytime soon.
Mr. Sinclair says we are going to see $10 a gallon gasoline in 2016. I think he is wrong, but what if he is right? So what? That is about three times higher than it is today. If gold is less than three times higher in 2016, as he predicts -- maybe $3,500 -- than it is today, so what? That is a long, long way from $50,000 -- specifically, $46,500.
He says that Cyprus is a blueprint. It is? Really? For what nation? Maybe Malta. Cyprus is not a blueprint for anything larger than an island. It was a fluke from the beginning, and some rich Russians thought they were going to beat the eurozone system by investing their money there. Today there are fewer rich Russians. So what? The partial bank collapse in Cyprus had no repercussions anywhere else. The crisis in Greece had a few repercussions, but it's over for now. The European Central Bank did not inflate the currency to zero value.
Mr. Sinclair believes that when commodity futures investors start to demand delivery of gold, this will drive the price of gold up. I ask this: Has this happened to any commodity in the past? The answer is no. He knows this. He says that the Comex may start settling gold contracts in dollars. I think he is probably right. But that doesn't mean that gold is going to $50,000 as a result. People speculate in commodity futures in terms of U.S. dollars, in order to get more U.S. dollars, not to get gold. When they can get more dollars, they take the money and run. They did not intend to take delivery. They just want their leveraged returns, paid for by those on the other side of the contracts.
Commodity futures trading is a zero-sum game. There is someone long and someone short. The gains one will make will be paid for by the other. He sees a 38-to-one increases. Why gold alone? He did not say. Hyperinflation will have this effect on all commodities.
If you think his scenario makes no sense, that's because you are not suffering from a senior moment. But if you think it does makes sense, and you are under age 70, see your doctor. Or your psychiatrist.
THE SUPERCLASS AND GOLD
At the top end of the wealth of the world are about 6,000 people, according to David Rothkopf in his book, Superclass. They run the show. A show does not go on unless they approve it.
These people do not own gold. They do not want to own gold. They own capital assets. They own large banks. They surely own the politicians. Think of them as the COMEX for elections: a true zero-sum game for the voters. What these people say, is what the rest of us get. These people are not going to go out and sell many of their assets for gold. Anyway, nobody else could buy these assets. To sell assets, you have to have a buyer of the assets. To get currency, meaning digital money, to buy gold in physical form, you have to sell something for dollars. You have to sell it to another member of the superclass.
Why will a few of them buy gold between now and 2020? They never have since 1914. Why would we expect them to change their minds? Sure, they might buy a little gold bullion. They could drive gold's price up, but not by 38 to one.
Even if they start buying, watch what happens in India. There will be sales of physical gold by Indians. There always is. They are gold experts, and they do not hold on to gold at the margin when they can get a lot of dollars for gold. They are speculators. They happen to hold physical gold, but they are still speculators. If the price goes up, physical gold will be made available from India. Count on it.
Mr. Sinclair is implicitly and necessarily saying that a significant segment of the old boy network that runs the world, the superclass, will reverse their opposition to gold sometime in the next six years. They are going to shift significant quantities of their wealth in the direction of gold, despite the fact that they control the whole world, including the world's political structures. How? By means of the present financial system, which is not based on gold, and has not been based on gold since August 1914. He expects this enormous change to take place at the very top, which means the Keynesian-educated elite, at least a third of whom have attended one of 20 elite universities in the West. All of a sudden, without warning, these people are going to abandon Keynesianism and its hatred of gold, and adopt some version of Austrian economics.
It isn't going to happen.
Meanwhile, if the price of gold soars, millions of little people, meaning Indians who buy gold for their daughters' dowries, will come into the market and sell physical gold, thereby depressing its price in dollars. So, the people at the top, who make the decisions, are not going to become gold bugs, and the people at the bottom, who really are gold bugs, will sell gold into Western markets, or into Chinese markets, if they think there is going to be money made by selling gold.
We will not have hyperinflation in the Western economies between now and 2020. The whole world holds U.S. dollars as the #1 reserve currency. This is how they subsidize exports: mercantilism. We are not going to go from around 2% CPI price inflation per annum in 2014 to hyperinflation in 2020. There is no way that this is going to happen. Mr. Sinclair presents no scenario that would let it happen. That is because there is no such scenario, short of nuclear war and a collapse of Western civilization. He did not mention nuclear war in his interview.
Excess reserves held by commercial banks at the Federal Reserve are sufficient to make certain that there is not going to be hyperinflation. That is why there has not been hyperinflation since 2008. The commercial banks are not going to lend this money into society if they think worldwide hyperinflation is coming. That would mean the destruction of civilization. But they are surely not going to buy gold. The Federal Reserve can stop that at any time.
The rich people at the top of the wealth pyramid are Keynesians. They are devotees at the temple of Keynes. They are not going to abandon this religion between now and 2020. Mr. Sinclair does not understand how powerful this religion is. Keynesianism has the markings of a religion. It has a confession: "Fiat money overcomes recessions." It has an agenda: salvation by economic growth. It has a doctrine of omniscience: monetary central planning. It has a priesthood: Ph.D-holding economists. It has evangelism: Congress, the universities, and the mainstream media.
Mr. Sinclair is not just talking about the shift in commodity investing. He is talking about, first, the religious transformation of the international superclass, and second, a collapse of Western civilization, which is what hyperinflation would produce.
Let me say it loud and clear: neither is going to happen between now and 2021.
After you view this, you can safely ignore it.
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