Thursday, March 20, 2014

Will Gold Go to $50,000 an Ounce? Gary North versus Jim Sinclair

Long-time gold bug Jim Sinclair is predicting that the price of gold will be $50,000 sometime in 2020.

Gary North says: not a chance:
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...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 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.

I tend to side with North here. The year 2020 is, yikes, only 6 years away. It is doubtful that the Fed will do so much money printing between now and then that it will cause such a spike in gold. Indeed, it would take very unusual circumstances for the Fed to do so much money printing over a short period.  That said,  I don't think the possibility can be completely eliminated. I am very bullish on gold at present (SEE: The EPJ Daily Alert), but I try not to get too much into the exact price forecast game. Trends are difficult in themselves to get right, never mind exact price forecasts. My best  rough guess is that we could see a gold price of around $10,000, but this is a rough guess. My general advice is buy gold and tuck it away, gold  is in a major uptrend. We may not get hyperinflation, but 10% price inflation is not out of the question.

BTW, North's advice about buying real estate, if you expect hyperiflation, is very sound. But you need to buy it with a huge mortgage. The play is in the ability to payoff the debt in very cheap dollars.


  1. pathetic.

    housing over bullion. Sure... nice cover RW, on needing to be loaned up, but still not good enough, with no care to that carry cost, relative to that of bullion... Also ignores the fact that houses are bought upwards on payments and credit in boom times, while gold gains its premium in times of monetary imbalance, which, in this case, is heading us straight into poor economic times for American home owners.

    No wonder, from another who missed Thomas Paine's age of reason

  2. Real estate, especially homes, should go down in numerical dollars in the face of an inflationary bust I think. Why? For housing prices to go up, people need to be able to bid them up. Without dollars, loans, or jobs how will they do that? The inflation scenario of a bust following the present boom leaves only speculators with access to the fed money window to buy houses.

    Now maybe on the far far far side of the next bust it may come out ok, but expect to hold on to that real estate for a long time. If it needs to be liquidated too soon it could turn out as bad as cash in a mattress.
    Renting the property might turn out ok, but that's on the rental revenue.

    Or has the prediction changed to an inflationary boom where suddenly people's salaries have doubled in numerical dollars and everyone has jobs?

    And while I am also not particularly bullish on gold atm, gold doesn't have property taxes and it sits happily in a safe requiring no effort to maintain.

  3. When a completely physical gold market is used to balance out the liabilities on central bank and government balance sheet, I have no doubt gold will hit the 50k mark in real terms.

  4. It's about settlement....North misses the point.

    Some thoughts on 'international reserves'.....Hugo Salinas Price

    International reserves increase when importing countries cannot pay for their imports with exports; in other words, when the importing countries have “trade imbalances” and make up the trade imbalance by sending (mainly) either dollars or euros to the exporting countries.

    Evidently, the importing countries or areas are falling behind in their capacity to pay with their own products, for the products of the exporting countries. The amount of dollars and euros (and other reserve currencies) which they had to send to the exporting countries increased by 85% in the last twelve months, over the sum which they sent the previous twelve months, i.e. from August 1, 2011 to July, 2012.

    The increase in “International Reserves Excluding Gold” from 1971 to the present - 42 years – has been spectacular.

    It is important to note that “International Reserves” are invested in diverse Bonds, prima facie evidence that trade imbalances have not been settled since 1971. Settlement happens when a debt is paid. If a country owns Bonds, it is a holder of debt and has not been paid. Had the trade imbalances been settled, International Reserves would be not much different from what they were in 1971.

    1. I find your point interesting. The only thing I think all these countries can do if they fight a return to the gold standard if(when?) this settlement issue comes to a head is try to force everyone to the SDR.

      Can the force of collective governments do it? I hate to say this, but maybe the can?! (The question is, would enough of them want to as well.)

      I think about 1933 and our government telling the sheeple they have to come turn in their gold or go to jail. I'm sure a lot of people ignored that diktat, but obviously not most of them unfortunately...

      I really wonder if we could see such thing happen globally(I hope not!).