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THE 2021 GLOBAL GOLD REPORT

INTRODUCTION01FISCAL POLICY: The River of Red Ink02MONETARY POLICY: Printing the Digital Dollar03SUPPLY AND DEMAND REPORT04DOLLAR CRASH AND DE-DOLLARIZATION05GLOBAL FLASH POINTS0650 YEARS ON…07

The 2021 Global Gold Report01

INTRO-DUCTION

“I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold…”—President Richard Nixon, August 1971

“We’re in the throes of the greatest monetary inflation in U.S. history. Things have come home to roost – we just haven’t realized it yet. Fed liquidity is masking deep structural impairment, while Trillions necessary to stabilize a fragile Bubble Economy only push the runaway financial Bubble to more precarious extremes.”—Doug Noland, Credit Bubble Bulletin, 2021

03

We wrote in our last Global Gold Report, the

Special 2020 COVD-19 Updated Edition, that the

US dollar would not be able to escape the toll the

pandemic and lockdown would exact.

Now the Commerce Department reports that US

GDP fell 3.5 percent in 2020. That is the worst

decline in more than two generations. As

predicted, the dollar was hit hard along the way,

falling 6.8 percent in 2020. We expect there is

more pain to come for dollar holders this year.

The pandemic has exacerbated many of the

issues we examine in this report, especially on the

fiscal and monetary fronts, twin engines of gold

bull markets. It is clear already that the new presi-

dential administration and the Washington UniPa-

rty will cling to spurious economic reasoning,

not because the arguments for their new

theories are convincing, but rather because they

provide cover for what the political classes want

to do anyway: dig the debt hole deeper in order

to spend more. Or as Franklin Roosevelt’s

advisor Harry Hopkins put it, “spend and spend,

and elect and elect.”

Whether the new US political alignment will

aggravate geopolitical tensions remains to be

seen. We asked one US Senator to suggest the

most likely target of opportunity for foreign

interventionism by the Biden administration, if

not another regime change operation. We will

share his opinion and point to other foreign

hotspots, which like fiscal and monetary

recklessness, are capable of unleashing yet

another powerful dynamic for gold.

04

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The Gold Price - 50 Years On

1975 1985 19951980 1990 2000 2005 2010 2015 2020

0.0

500

1.000

1.500

2.000

USD

INTRODUCTION

The New Gilded Age

The Gilded Age is the name given to an era

between the end of the Civil War and the

beginning of World War I. Although American’s

living standards improved so much that the per

capita consumption of goods tripled during that

half century, and while no one would argue that

the mechanization that replaced so much

back-breaking human toil was a bad thing, the

transformation of the economy from an agrarian

to an industrialized one was accompanied by the

dislocation of both populations and of jobs.

For many it was a golden age, but the disaffected

and dislocated among the masses saw it as only

a layer of gold leaf for the classes.

The result was the birth of progressive, socialist,

and populist movements.

Today, despite record high stock prices, our age,

too, is characterized by dangerous political

polarization. It is accompanied by compounding

debt and by monetary practices that have been

the undoing of governments almost without

number.

And yet, the policies that have produced this

state persist. As destructive as they are, they

must be driven from some corner; there must be

beneficiaries somewhere. Those beneficiaries

can be found in the very wealth disparities that

characterize our time. A Foreign Affairs survey of

Gilded Age policies describes our growing

inequalities succinctly:

05

01 The 2021 Global Gold Report

“Ten percent of Americans now control 97

percent of all capital income in the country.

Nearly half of the new income generated

since the global financial crisis of 2008 has

gone to the wealthiest one percent of U.S.

citizens. The richest three Americans

collectively have more wealth than the

poorest 160 million Americans.”

By whatever path America arrived here, a

UniParty is now in charge, one that tilts heavily

progressive and socialist. The major institutions

of our times – the major media outlets, the tech

monopolies, the education establishments, and

the intelligentsia are quite pleased with those

who now control the levers of power. For our part,

we simply note that the old virtues of sound

money, savings, and balanced budgets,

forethought and prudence in the affairs of state,

not to mention avoiding the centralization of

power, are entirely foreign to those in charge.

The checks and balances we expect to protect us

from blatant vote buying, compounding debt,

cronyism, and the concentration of power in few

hands are simply ineffectual in our new Gilded

Age of Cronyism. Washington is the servitor of

powerful corporate interests, while the Federal

Reserve is the handmaiden of the Wall Street

cartels that created it in the first place.

We leave it to others to suggest ways to check the

excesses of the State. It is not in our charter to do

so, and we believe the hour is late for such

prescriptions anyway. Instead, we continue to do

what we do best: help our friends and clients

profit and protect themselves, their families, their

wealth, and their retirement with precious metals.

It is now fifty years since the US dollar’s last ties to

the discipline and reliability of gold were severed.

We believe the reasons outlined in this report to

repair to the safe havens of gold and silver are

persuasive. We trust that the reader will

understand why we state them with some urgency.

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01INTRODUCTION

The River of Red Ink

Reuters, 2/17/21 – “The COVID pandemic has added $24 trillion to the global debt mountain over the last year a new study has shown… Debt as a ratio of world economic output known as gross domestic product surged by 35 percentage points to over 355% of GDP.

FISCAL POLICY:


07

Sources: Treasury, IBA

US Debt and the Gold Price - 50 Years On

1980 1990 2000 2010 2020

24.000.000

20.000.000

16.000.000

12.000.000

8.000.000

4.000.000

0

28.000.000

1,800

2,100

1,500

1,200

900

600

300

0

Mill

ion

s o

f D

olla

rs

U.S

. Do

llars p

er Tro

y O

un

ce

FRED Gross Domestic Product (left)

Gold Fixing Price 10:30 A.M. (London time) in London Bullion Market, based in U.S Dollars (right)

02FISCAL POLICY: The River of Red Ink

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Fiscal policy, the spending, borrowing, and

taxation practices of nations, undergird most of

the world’s major economic crises and collapses.

In the United States, fiscal policy is the

responsibility of elected officials, both federal

legislators and the president.

Reflecting Washington’s probity and sense of

responsibility, debt is the single best indicator of US

fiscal health. While debt can be a useful tool in

building for the future, in its virulent form it is driven

by political appetites for vote-buying and power.

It is a healthy instinct for people to try to provide

for the future and to leave their children better

off, an objective even incorporated in the

preamble to the Constitution with the Framers’

stated intent to “secure the Blessings of Liberty

to ourselves and our Posterity.” But it is an

ill-starred nation that compounds debt for

present consumption, with the burden kicked

down the road for future generations who had no

say in the debt’s creation. Yet little of today’s

deficit spending ever finds its way to anything

productive of future wealth.

Last year’s Global Gold Report discussed the

marginal productivity of debt—how many

dollars of additional wealth are created with

each added dollar of debt? Is the nation’s total

productivity, Gross Domestic Product, outpacing

the accumulation of debt? Or is the debt

growing faster than productivity?

The following chart illustrates where the

national debt is 50 years on: The US is like a

farmer who consumes his seed corn over the

winter and has nothing to plant in the spring. US

debt is not only growing faster than ever, it is

being used to fund present consumption.


Sources: Treasury, IBA

Federal Debt and GDP - 50 Years On

24.000.000

20.000.000

16.000.000

12.000.000

8.000.000

4.000.000

0

28.000.000

24.000

28.000

20.000

16.000

12.000

8.000

4.000

0

Mill

ion

s o

f D

olla

rs

Billio

ns o

f Do

llars

FRED Federal Debt: Total Public Debt (right)

Gross Domestic Product (left)

1980 1990 2000 2010 2020

09


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Gross federal debt (the red line) passed GDP (in

blue) in 2012. While the debt has continued to

climb more steeply that productivity since them,

with the onset of COVID-19 the debt trajectory

has turned sharply higher. As 2020 began the

Federal Debt was just over $23 trillion. Only

about a year later, in February 2021, it passed $28

trillion.

These trillion-dollar figures are just numbers

until given some points of reference. They

become vivid when you realize the gross national

debt is $84,600 per person, or more than

$338,000 for a family of four.

Throughout US history, the federal debt has

averaged about 30 percent of GDP. Of course, it

spiked higher under the total military mobiliza-

tion of America under World War II when debt

reached 118 percent of GDP. But after the war,

the debt ratio fell for the next 30 years, back to

the old average of 30 percent. Fifty years ago,

when American abandoned a gold-linked dollar,

the national debt was 34 percent of GDP.

In 2020, with only elective wars underway, the

national debt reached 139 percent of GDP. In fact,

even before COVID-19 appeared, US debt had been

running at more than 100 percent of GDP for years.

Sources: OMB, St. Louis Fed

Debt as a Percentage of GDP – 50 Years On

140

120

100

80

60

40

20

FRED Federal Debt: Total Public Debt as Percent of Gross Domestic Product

Per

cen

t o

f G

DP

1980 1990 2000 2010 2020

We Owe It To Ourselves?

Often reports of US government debt, especially

those by government economists, refer only to

that portion owed to outside creditors, the

portion called “debt held by the public.” It does

not include the portion called “intergovernmen-

tal holdings,” more than $6 trillion the Treasury

has “borrowed” from the trust funds of Social

Security and other obligations owed the Ameri-

can people. It is a disheartening confrontation

with reality to hear government officials explain

that debt owed foreign creditors are real obliga-

tions of the government, but those promises

made to American citizens, benefits for which

they paid over a lifetime, are not in the same

category and are not computed in official debt

ratios.

Yet the shortfall in these programs is casting a

dark shadow on the US fiscal future already. As

the Committee for a Responsible Federal Budget

reports on a recent Congressional Budget Office

study, four major trust funds are on a path

toward insolvency. CBO projects Highway Trust

Fund insolvency in FY 2021 and Medicare Hospi-

tal Insurance trust fund insolvency in FY 2024.

Social Security Disability Insurance trust fund

insolvency arrives in 2026. Social Security Old

Age and Survivors Insurance trust fund insolven-

cy appears likely in calendar year 2031.

11


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Intragovernmental Holdings and Debt Held by the Public (Principal)As of January 2021

$30.000.000

$24.000.000

$18.000.000

$12.000.000

$6.000.000

$0

Mill

ion

s o

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rs

13

CBO Project Fast-Approaching Trust Fund Depletion Dates

Source: Congressional Budget Office and CRFB calculations.

Trust Fund Balances, Percent of Annual Spending

Social Security Old-Age & Survivors Insurance 2031

Social Security Disability Insurance 2026

Medicare Hospital Insurance 2024 Highway 2021

500%

400%

300%

200%

100%

0%

2010 2015 2020 2025 2030

Today the US government is already the world’s

biggest debtor. Now, as control of the House and

a new voting majority in the Senate remove

obstacles to President Biden’s aggressive spend-

ing policies, America’s debt is a calamity clearly

beyond hope of containment.

The Manhattan Institute provided this synopsis

of candidate Biden’s promises for $11 trillion in

new spending:

“His $1.4 trillion health care plan would expand

the Affordable Care Act, bring a “public option”

to the health exchanges, and expand long-term

care assistance.

More recently, Biden proposed reducing the

Medicare eligibility age to 60, at an estimated

cost of $300 billion. He also has proposed new

spending on climate and infrastructure ($2

trillion), Social Security and Supplemental

Security Income ($1 trillion according to the

Progressive Policy Institute), college, K-12

education, and preschool aid ($1.5 trillion), family

leave assistance ($550 billion), “Buy America”

investments ($700 billion), housing aid ($640

billion), and combatting opioid addiction ($125

billion). Finally, Biden has endorsed the $3 trillion

in stimulus spending passed by the Democratic

House.”


A Huge Fiscal Experiment

“The whole world is watching.”


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How will Biden’s “bold spending plans” be paid

for?

It will not be from recovery-driven tax revenue.

Before COVID-19 hit in 2020, the US had experi-

enced the longest recovery in history. But the

deficits ran a trillion dollars a year anyway.

It will not be funded by foreign creditors like

China. China’s holdings of US debt have fallen by

about 30 percent since 2013, a sign of things to

come.

It will have to be funded by the Federal Reserve.

And that brings us to Monetary Policy. The US

government has now entered a red zone of debt

that will plague us even after the coronavirus is

just a bad memory. Deficit financed spending

and the metastasizing debt will have to be

funded by the Federal Reserve.

“Joe Biden’s strategy for the US economy is the most radical departure from prevailing policies since Ronald Reagan’s free-market reforms 40 years ago. With plans for public borrowing and spending on a scale not seen since the second world war, the administration is undertaking a huge fiscal experiment.

—Financial Times


15

The US government is in such a deep dive now,

that one prominent voice in the call for fiscal

responsibility has concluded that it cannot pull

out.

Mitch Daniels is the former governor of Indiana.

He served as head of the Office of Management

and Budget, and is currently president of Purdue

University. Since 2015, Daniels has been

co-chairman of the Committee for a Responsible

Federal Budget, a non-partisan, Washing-

ton-based public policy organization.

Daniels has battled tirelessly to protect the

nation from “serious, permanent damage to the

economy.”

Now Daniels has thrown in the towel.

Daniels long believed “that the American people

could engage in an adult conversation about the

subject and support the needed changes, before

it was too late.”

No longer.

“I conclude, reluctantly and dejectedly, that it’s

time to face the unpleasant facts. The past

decade demonstrates amply that our political

process is not capable of the kind of decisions

that are necessary.”

In a Washington Post opinion piece in January,

Daniels writes that it is too late now for the

painless changes could have been taken before

we reached our present fiscal plight. Instead,

“the inexorable arithmetic of dollars times

demography has taken us past the point of no

return. It’s no longer possible to say that, by

starting now, we can avert massive, and

massively unfair, changes in the promises we

have made, or that current beneficiaries have

nothing to worry about. That line was crossed

even before the emergency budget blowout of

2020 added trillions to the debt tab we will dump

on younger generations.”

“…. There is zero chance of delivering on the

promises already in place, let alone the fresh,

astonishing proposals in Washington to make

these commitments even larger.”

“You’ve got to know when to fold ’em,” says

Daniels. He adds this warning:

“If you think confidence in the federal

government is shaky now, wait until it starts

reneging on these ‘sacred’ promises. Better to

come clean, and help people plan, starting now.”

“You’ve Got to Know When to Fold

‘EM!”

More On The Titanic Problem.


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Like an iceberg, nine-tenths of the US debt is

hidden beneath the waterline. So, when the debt

is discussed, seldom and reluctantly, by

politicians, it is only this visible portion of the

debt, $28 trillion, that is addressed.

But that is only a small part of the government’s

obligations, one-tenth of the government’s

obligations!

Lawrence Kotlikoff, economics professor at

Boston University and former member of the

Council of Economic Advisors, warns that this

“debtberg” is hidden by government accounting.

“Most of Uncle Sam's IOUs have been carefully

kept off the books,” says Kotlikoff. “These

implicit, but no less economically real, debts

swamp the ones Congress has deemed to

formally disclose. Social Security's unfunded

liability is an example. According to its trustees,

the system's red ink is $53 trillion and growing.

That's well more than two years of GDP.

“Add up all of Uncle Sam's disclosed and

undisclosed IOUs, i.e., compute the country's

fiscal gap – the present value difference between

projected outlays and receipts – and we're

talking about eight years of GDP. This is the

generational bill we are dumping in our children's

and grandchildren's laps.

“Piling more debt on top of this burden is

unconscionable.”

Printing the Digital Dollar

MONETARY POLICY:

03

17 “Every succeeding crisis brings a more muscular monetary response – a lower funds rate, a larger Fed balance sheet. But ultralow rates encourage more credit formation, which leads to greater fragility and thus to the next crisis. The Fed is arsonist and fireman all rolled up into one.”—James Grant

“Inflation will match, then surpass, then soar above the targets of the peculiar folk who inhabit central banks and whose job they think it is to raise inflation, end inequality, ameliorate the climate, expunge Covid-19, and cure dandruff. By golly, there is no human problem that cannot be solved by newly printed [soon-to-be] worthless ‘money.”—Paul Singer

We pay close attention to government debt and

its frenzied money printing because gold reflects

instability in government finance. Ever since the

federal government started running trillion-dol-

lar deficits beginning with the bursting of the

housing bubble and the Great Recession in 2009,

Washington has become increasingly dependent

on the Federal Reserve’s monetary policy to keep

itself funded.

The deficit for Fiscal Year 2020 which ended

September 30, was one for the record books, a

$3.1 trillion dollar geyser of red ink. With Presi-

dent Biden’s $1.9 trillion stimulus and other mea-

sures moving through the UniParty’s 117th

Congress this year’s deficit could easily rival last

year’s record.

The 2021 Global Gold Report

“This Is Not Going to End Well!”

“For the 12 months that ended in January [2021], the Federal deficit totaled a whopping $3.47 trillion, or 16.2 percent of GDP. That baleful outcome was because outlays tagged $7 trillion while receipts barely amounted to $3.5 trillion.

“Financing 50% of government outlays with borrowed money is banana republic stuff; it’s a sign that fiscal sobriety and rationality have been obliterated in the nation’s capital.” —David A. Stockman, former Reagan Budget Director

MONETARY POLICY: Printing the Digital Dollar

$7 trillionOutlays

6

5

4

3

2

1

0

U.S. Federal spending and income, 12-mont rolling sum

1982 2000 20151005959085

03

Receipts

Source: U.S. Treasury

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What does a government that already has $28

trillion in debt that it cannot pay do when it

wants to spend trillions more?

It “prints” the money.

It is here that the Federal Reserve and its digital

money printing enters the picture.

It is not to excuse Federal Reserve officials who

came before for their part in corrupting US

monetary affairs for over a century. No more proof

should be needed than the destruction of 93

percent of the US dollar’s power under their watch.

But beginning with the financial crisis in 2008,

US central bankers have expanded the scale of

their baleful interventions in a way that would

have their predecessors clutching their hearts.

The have become the Great and Powerful Oz of

the entire national economy.

This chart shows what has gone on behind the

curtain. It tracks the financial assets – bonds,

mortgage securities, government debt

instruments – that the Federal Reserve has

purchased with made-up, digitally printed

money beginning which was the start of the

Great Recession in December 2007.


Source: Board of Governors of the Federal Reserve System (US)

Money Printing Goes Wild!

6,000,000

7,000,000

8,000,000

5,000,000

4,000,000

3,000,000

2,000,000

1,000,000

0

FRED Assets: Total Assets: Total Assets (Less Elimination from Consolidation): Wednesday Level

Mill

ion

s o

f U

.S. D

olla

rs

2008 2010 2012 2014 2016 2018 2012 2020

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MONETARY POLICY: Printing the Digital Dollar 03w

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In the following seven years the Federal Reserve

wozards created more than $3.6 trillion out of

nothing at all! It was money creation at a

breathtaking speed. You can see that the

trendline turns down slightly as the Fed

attempted to reverse some the money printing in

2018. But thanks to pressure from Wall Street, it

soon gave up and in 2019 began to restore some

of the prior freshly printed money it had sought

to reign in.

Now, in just the last 12 months, and with a boost

from COVID-19 policy choices, the Fed has

purchased more than $3.2 trillion of additional

financial assets – and that is before the $1.9

trillion Biden stimulus package landed.

The money was created to enable the Fed to

paper over Washington’s deficit spending and to

help fund the massive federal debt.

But to be clear, where does the Fed get the

money to buy trillion of dollars’ worth of financial

assets?

It prints the money. Since this is the digital age, it

does it with a few simple computer keystrokes,

which is far less cumbersome than printing with

paper and ink.

Here is Neel Kashkari, president of the Federal

Reserve Bank of Minneapolis, on CBS 60 Minutes:

“That’s literally what Congress has told us to do.

That’s the authority that they have given us, to

print money and provide liquidity into the

financial system. And that’s how we do it. We

create it electronically. And then we can also

print it with the Treasury Department, print it so

that you can get money outta your ATM.”

All that new money, those new US dollars created

with a keystroke, eventually dilutes the

purchasing power of every other dollar.

Including the dollars you own.

We think that the visual evidence justifies

describing Fed money printing as having gone

stratospheric. It is money printing at rates

reminescent of end-stage third world banana

republics.

The next chart, covering the same period,

reflects the growth of the money supply (M2:

cash, checking and savings deposits, money

market securities, mutual funds, and other time

deposits).


21

Source: Board of Governors of the Federal Reserve System (US)

Money Supply Growth - 50 Years On

12,000

14,000

16,000

18,000

20,000

10,000

8,000

6,000

4,000

2,000

0

FRED M2 Money Stock

Bill

ion

s o

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rs

1980 1990 2000 2010 2020

In 2020, the money supply grew by almost $4

trillion. More than 20 percent of all dollars in

existence were created that year. How does this

differ from the monetary gushers that erupt in

banana republics?

In the case of third world banana republics, the

debt is often denominated in a foreign currency,

usually dollars. While they can print their own

currencies to pay domestic costs, they can’t

print dollars.

But the US can print dollars. Indeed some Fed

officials are whistling past the graveyard as they

hatch schemes to inflate away the debt. They

are gathered in small groups talking among

themselves about ways to firehose more made

up money into the hands of the American

people. Leading suggestions include the

issuance of something called “recession insur-

ance bonds.” The Fed would deposit these

bonds directly into the people’s account. When

the Fed deems it timely, it would flip of a switch

and activate the bonds.


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A competing plan would cut out the middleman

of the taxpayers’ banks; it would simply create a

bank account directly with the Fed for every

American. These are cyncial plans, since even

Fed academics realize they devalue the

currency. Their schemes are nothing less than

terminal, printing ever more unbacked, made-up

money until the monetary system collapses.

They are calling them “currency management

exercises” when they should be calling them

banana republic endgames.

Only a few years ago, in the thick of its

hyperinflation, Venzuela had to knock five zeros

off of its old currnecy, and issue new currency

bills. The old 100,000 bolivar note was

exchanged for the new 1 bolivar note. The

numbers had become too big and cumberome to

manage. But that did not end the money

printing. Venezuelan president Nichlas Maduro

announced that he would give millions of

Venezuelans ‘protective bonds” of 500,000

bolivars. “I am the protector of the people of

Venezuela, of the humble, of the youth, of the

workers, of the women, protector of the legacy of

the commander Hugo Chávez," Maduro said.

The hyperinflation grew worse and poverty

spread.

The country has never recoveared. Those

500,000 bolivar bonds are worth about 25

cents. Now the government is printing new

1,000,000 bolivar bills.

Money printing, whether by third world or first

world banana republics, devalues the existing

currency. The deteriorating purchasing power

of the currency is reflected in the rising gold

price.

Many are the countries have set off on the

banana republic desolation road, and followed

it to its unhappy end. Few are those individuals

who have seen the currency collapse coming

and moved in time to the the safety of gold –

the world’s incorrptible and enduring money

ages of the ages.

The US has now entered a monetary policy red

zone. The Fed’s money printing will plague us

even after the coronavirus is just a bad

memory.

The Perpetual Motion Money Machine


23

The school of thought that animates much of

Washington today is Modern Monetary Theory

(MMT). The central idea is that if the government

has a printing press, it can print (or digitally

print) all the money it wants. It does not even

need to use taxing authority, nor does it need to

borrow the money it spends. The theory holds

that the government can just print away.

The promises of MMT adherents are therefore

endless. It is like a perpetual motion machine.

Government guaranteed jobs? Of course! Free

college education? No worries! Free universal

income? The Green New Deal? Free health care?

Done, done, done! MMT can provide all that and

much, much more. It may be crackpot

economics, but it provides cover for politicians

and their promises. No wonder that MMT has left

the fevered swamps and gone mainstream in

DC!

The political classes have signed on to the

intellectual conclusions the drove the money

madness in Germany in the 1920s, in Zimbabwe a

dozen years ago, and in Venezuela over the last

decade. They all practiced Modern Monetary

Theory under a different name.


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Demand

SUPPLY AND DEMAND REPORT


25

Once again this year we report the topline gold supply and

demand numbers. They are informative, especially when out

of the ordinary events like the global COVID-19 lockdowns

interrupt supply chains and make meaningful changes in

existing trendlines and projections.

Gold demand fell sharpy under the economic

strain of the pandemic. According to the World

Gold Council, consumer demand fell 14 percent

in 2020 to 3,759.6 tons. It is the first dip below

4,000 tons since 2009 and the collapse of the

housing bubble.

In fourth quarter of 2020, gold demand was off

28 percent versus the same quarter a year

earlier.

Gold demand is defined as jewelry consumption,

technology fabrication, investment demand,

and net central bank purchases.

Coronavirus Struck Gold Demand

SUPPLY AND DEMAND REPORT 04w

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Here is a overview of the four sectors, breaking

investment demand into ETFs separately from

other bullion investment in bars and coins:

Gold demand for jewelry was off 34 percent for

the full year 2020, the result of consumer

weakness and higher gold prices. By the fourth

quarter, jewelry demand had risen back above

the year’s average, but was still 13 percent below

fourth quarter 2019.

Jewelry

COVID-19 impacted technology demand, with

gold usage down 7 percent in 2020. In the fourth

quarter technology demand was recovering.

Technology

Demand in the bullion sector, bars and coins, fell

in 2020 below its ten-year average of 1,199.5 tons.

However, a strong fourth quarter, which was up

10 percent over 2019, enabled the annual

demand to finish at 896.1 tons.

But for American gold buyers it was a different

story. After three years of declining sales, 2020

saw US gold coin and bar sales rocket to $3.8

billion, the highest level since 2011.

Bars and Coins

4,000

2,000

2,500

3,000

3,500

4,500

5,000

1,500

1,000

500

0

Tonnes

20202019

Jewelry

Total bar and coin

Technology

ETFs and similiar products

Central banks and other inst

27


Annual US demand for gold bars and coins:

120

100

80

60

40

20

02001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0

Tonnes

Tonnes

US$ (mn)

US$ value* (rhs)

2020 was a year of record inflows to

exchange-traded funds. Despite an outflow of

130 ton in the fourth quarter, for the year the WGC

reports net record global ETF inflows of 877.1 tons.

By February 2021, with interest rates rising, global

gold ETFs lost two percent of assets, a total of

84.7 tons

Exchange-Traded Funds


owe (Tonnes) Gold, US$/oz

100 1,800

1,600

1,400

1,200

0

-100

-200Feb 2019

Nort America Europe Asia Other Gold Price (Rhs)

Apr 2019 Jun 2019 Aug 2019 Oct 2019 Dec 2019 Feb 2020 Apr 2020 Jun 2020 Aug 2020 Oct 2020 Dec 2020 Feb 2021

ETF Flow Chart – Data as of 28 February 2021


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28Central bank gold purchases, a major dynamic of

the long-term gold bull market, slowed in the second

half of 2020. For the year, central bank purchases

totaled 272.9 tons, off 59 percent from 2019.

Central Banks


29

800

700

600

500

400

300

200

100

0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Tonnes

Q1

-100

Q2 Q3 Q4 Central Bank Purchases


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30

The lion’s share of gold supplies each year

comes from new mine production. It, too, was

curbed by the pandemic, dipping to a five-year

low. According to WGC figures, 2020 mine

production fell to 3,400.8 tons, four percent

below 2019 mine production. Fourth quarter

2020 mine production fell to only 896.3 tons.

The WGC expects that pandemic suppression of

mine production will ease in 2021. But according

to other sources, there have been no discoveries

with more than two million ounces of minable

gold since 2017.

Supply

COVID-19 lockdowns and precautions

suppressed total 2020 gold production to 4,633

tons, the first downturn since 2017. Despite

record gold prices worldwide, gold from recycled

sources rose only one percent in 2020. Recycled

supplies fell victim to lockdowns, as many

jewelers and buyers of recycled gold closed and

consumers sheltered in their homes.

New Mine Production

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

01970 1980 1990 2000 2010 2020

Tonnes


31

GOLD SUPPLY AND DEMAND: The Essential Lesson

Weiner estimated that In a recent year with

annual production amounting to only 1.7 percent

of existing stocks, “it would take 58 years at

current production levels just to produce the

same amount of gold as is now stockpiled. In

regular commodities, this same ratio—stocks to

flows—is measured in months. We just don’t

hoard wheat and oil for the long term, for obvious

reasons. Nor even iron or lumber or other durable

materials.”

The point we are making is that things like

seasonal patterns of consumption and the

discovery of new deposits affect prices at the

margin, or as Weiner says, “If total gold mining is

1.7 percent of gold inventories, then small

changes within that 1.7 percent are not likely to

have much impact on the gold prices.”

To understand the big movements in gold, it is

best to keep an eye on fiscal and monetary

policies that lead people to exchange

mismanaged state currencies for the enduring

money of the ages. And to be especially focused

on the policies that can cause large numbers of

dollar holders to head for the exit all at once.


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32

Because this year we expect the fiscal and mon-

etary extremes already discussed to exact

heavy costs, it is important to describe why those

factors are determinative of gold prices rather

than the ways in which production and

consumption analyses factors in other commod-

ities.

If oil production were interrupted at major sites

by a war or natural disaster, the effect on prices

would be immediate and dramatic. Widespread

crop failure will similarly affect an agricultural

commodity’s prices. Both oil and farm produce

are consumed.

Very little gold is ever consumed. It may be

refined into bullion bars, which are sometime

later manufactured into jewelry, only eventually

to be sold again, perhaps in times of financial

distress, to be refined into bars.

Almost all the gold ever mined in history, around

200,000 tons, is still in human hands. Just as

there is never a glut of gold, more than the

market can take, the result of overproduction, if

an unforeseen event like a pandemic halts the

world’s gold production for a year, the market

remains active; nobody would run out of gold.

Gold economist Keith Wiener writes, “People

have been hiding gold from their acquisitive

governments and neighbors for thousands of

years. Gold has always been the sort of thing that

most people would rather keep quiet about. It

defies any systematic inventorying process.”


33

GOLD, SILVER COIN DEMAND SURGING, STRAINING U.S. MINT'S CAPACITY

NEW YORK (Reuters) - The United States Mint

said on Tuesday (2/2/21) it was unable to meet

surging demand for its gold and silver bullion

coins in 2020 and through January, due partly to

pandemic-driven demand and plant capacity

issues.

Sales of U.S. gold bullion coins rose 258% in 2020

while silver coin demand was up 28%, the U.S.

Mint said Tuesday. Heavy buying has continued

in 2021, it said, squeezing supplies, which had

already been tight as the coronavirus affected

production….

The Mint, a division of the U.S. Treasury, had

limited distribution of its silver coins to suppliers

as it is currently changing the designs for its

American Eagle Gold and Silver Bullion Coins….

In January, 220,500 American Eagle gold bullion

coins were sold, up 290% from 56,500 a year

earlier, the Mint said.

For this year, the U.S. Mint has a limited window

to produce its current gold and silver coins, with

redesigned coins expected to debut in the

summer. It is limiting distribution of its gold,

silver, and platinum coins to specific dealers

because of heavy demand, and a limited number

of suppliers of metals, it said in a statement.


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34

35

—Ludwig von Mises

35

DOLLAR CRASH ANDDE-DOLLARIZATION

“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”


For the reasons discussed, monetary and fiscal,

the US dollar does not have a promising future as

a store of value, an essential characteristic of

desirable money. It is of course as a store of

value that gold is unmatched.

In this section we look more closely at the

immediate future of the value of the dollar, and

what is perhaps the most important financial

megatrend of our time: a worldwide flight from

the US dollar, the de-dollarization of the global

economy.

In January, 220,500 American Eagle gold bullion

coins were sold, up 290% from 56,500 a year

earlier, the Mint said.

For this year, the U.S. Mint has a limited window

to produce its current gold and silver coins, with

redesigned coins expected to debut in the

summer. It is limiting distribution of its gold,

silver, and platinum coins to specific dealers

because of heavy demand, and a limited number

of suppliers of metals, it said in a statement.

DOLLAR CRASH AND DE-DOLLARIZATION 05w

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36

Repeatedly last year in our weekly Gold Watch

commentaries we highlighted the alarms one

prominent economist is sounding about the US

dollar. Stephen Roach, a faculty member at Yale

University and former chairman of Morgan

Stanley Asia and former chief economist of

Morgan Stanley, warns that the dollar is about to

be rocked to it foundations.

When Roach began warning about a dollar crash

(“A Crash in the Dollar Is Coming,” Bloomberg

6/8/2020) the dollar had recovered and bounced

back from the brief sell-off that struck many

markets in the early reaction to the COVID-19

lockdowns in March. Throughout April and May,

the dollar index, a measure that compares the

value of the dollar to a basket of a half dozen

other major currencies, was trading in a range

just above and below 100.

Roach warned throughout the summer that “U.S.

living standards are about to be squeezed as

never before.” For the calendar year 2020 the

dollar dropped 6.8 percent. By early 2021, the

index had dipped below 90 twice. Note, however,

that dollar losses as reflected in the dollar index

understate the dollar’s failings since it is a

measure of the dollar against other currencies

that are engaged in massive money printing and

currency devaluation of their own. All the

currencies against which the index compares

the dollar are also losing purchasing power. This

is easily observed in the fact that gold prices hit

all-time highs against all the dollar index

currencies last year.

In any case, 2020 was just the beginning of the

dollar’s woes according to Roach, who is calling

for the dollar to fall as much as 35 percent by the

end of 2021.

Crash!


37

Even with the steep sell-off visible on this

one-year dollar index chart, “we are only in the

third inning of a nine-inning baseball game,”

says Roach.

Roach’s case is built on three points explained

briefly:

The Current Account Deficit. A current account

deficit occurs when the value of the goods and

services a country imports exceeds those it

exports. It is often the result of underinvestment

in the domestic economy and an over-valued

currency exchange rate. For the US, this broad

measure of trade saw its largest erosion on record

in the second quarter last year. It is in its worst

shape in more than a decade. The huge current

account deficit, fueled by plunging domestic

savings, notes Roach, means that investment

capital must be borrowed from abroad.

In a new article in the Financial Times, Roach

writes that a shortfall in American domestic

savings is going to exact a high toll.

Between 1960 and 2005, domestic savings

average about 7 percent. From 2011 to 2019,

before the Covid-19 shutdown, it had fallen to 2.9

percent. Now domestic savings has plunged into

negative territory, just as it did in the mortgage

and housing meltdown.

Apr Mey Jun Feb MarJul Aug Sep Oct Nov Dec 2021

104103102101

10099989796959493

919089

91.99

89.17

92.4691.75

95.71

98.7698.8298.35

94.61

89.68

91.61

94.3394.79

97.81

100.61100.97101.03

$USD US Dollar - Cash Settle (EOD) ICE5-Mar-2021

$USD (Daily) 91.99

Open 91.64 High 92.22 Low 91.64 Close 91.99 Chg +0.35 (0.38%)

©StockCharts.com


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©FT

Source: BEA

10

5

0

-5

A shortfall in Us domestic savings has long been apparentNet savings as a % of gross national income

1960 1970 1980 1990 2000 2010 2020


39

Domestic savings will likely continue to fall,

putting even more downward pressure on the

current account deficit.

The Euro. The dollar’s woes are even making the

euro look good. Roach writes that some of the

pushback he has personally received about his

forecast dollar crash can be explained under the

category of TINA, “There is No Alternative” to the

dollar, no matter its problems. That is like saying

“tough, you’ll learn to like it.”

Where their money is concerned, even when

people are told to suck it up and learn to like a

losing situation, they will begin to find

alternatives. That goes for a mismanaged

currency like the dollar, even if it means the

alternatives include the equally poorly managed

euro or the Chinese yuan.

Roach does not say, but the best alternatives to

the dollar and other currencies that are failing

stores of value are time-tested precious metals,

as the flights from troubled currencies

throughout the ages testify.

The Federal Reserve. Roach explains that “when

current-account deficits are under pressure, the

central bank can usually be counted on to come

to the rescue by tightening monetary policy.

That, most assuredly, is not the case with today’s

Fed.”

If Professor Roach is right that the dollar is going

to fall “very, very sharply” – and it should be

noted that he correctly predicted the bursting of

the housing bubble – the dollar still has a long

way to fall.

It would be difficult to 0verstate how drastically

that will affect our economy and the well-being

of the American people. Its impact will be much

more destructive than the housing bust and

mortgage meltdown.

The Federal Reserve estimated that the popping

of the housing bubble cost as many as 10 million

Americans their homes. Nine million jobs

disappeared. More than a quarter of American’s

net worth vanished. More than $2 trillion in

retirement assets were lost. Along the way it sent

the price of gold roaring to new all-time highs.

But the impact of a 35 percent drop in the value

of the dollar will be bigger. Much bigger.

“The national savings rate is probably going to

go deeper into negative territory than it has ever

done for the United States or any leading

economy in economic history,” said Roach.


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40

Writing last year about the forthcoming election,

we remarked that it could bring some big

surprises our way. Little did we expect that a

pro-Trump demonstration in Washington would

be used as an excuse for the prolonged

militarization of the Capitol. The element of

danger signaled by the presence of armed

troops on the street corners, high fences, and

concertina razor wire around the marble palaces

of DC seems to be useful to those that would like

to take the US further down an authoritarian

road and to justify a domestic “Patriot Act.”

De-Dollarization But it is not a good look for a country that is

dependent on the kindness of foreign strangers

to fund its ever-growing deficits. Capital is

mobile, despite the effort of nation-states to

immobilize it. Anything that evokes a state of

sub-normalcy or a state of siege in the US is not

a welcoming sign to capital. None of the things

that suggest instability make the dollar more

attractive. On the contrary, they invite

de-dollarization and investment in precious

metals.

2020 saw China bypass the US in foreign net

investment. Globally, foreign direct investment

fell in the pandemic environment. Nevertheless,

investment to China rose by four percent, to $163

billion. Investment flows the US fell by 49 percent

to $134 billion.

Many are the countries seeking to disengage

from the worldwide dollar standard. Unlike gold,

the value of which is intrinsic, unbacked paper

and digital currencies are a confidence game.

So great was the confidence in, and awe of,

America’s financial might after World War II, the

dollar became the global currency of choice.

This international role of the dollar, formalized by

the post-war Bretton Woods Agreement, has

added marginally to the purchasing power of the

US dollar as other nations have maintained their

own reserves of US dollars. A dwindling reliance

of the dollar will have the opposite effect of

diminishing the dollar’s purchasing power.

“A US dollar is an IOUfrom the Federal Reserve Bank.It's not backed by gold or silver.It's a promissory note that doesn'tactually promise anything.”

—P.J. O'Rourke


41


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42

Now confidence in the dollar in beginning to

wobble. The dollar’s share of global currency

reserves was 85 percent before the inflationary

1970s. Now it is 61 percent. Much of its lost share

has moved into gold.

Since 2000, China’s gold reserves have grown

from 395 to 1,948 metric tons, while Russia’s have

swollen from 343 tons to 2,299 tons today. In

Professor’s Roach’s scenario, the dollar’s share

of foreign reserves will drop further and

suddenly.

Concerns about wanton money printing and

limitless US debt, and therefore the reliability of

the international dollar-reserve monetary

system, are running so high that countries are

not just diversifying their reserves out of dollar.

The have even spent recent years repatriating

the gold that they have stored in foreign

institutions. Germany is among nations that

have brought home gold long stored with the US

Federal Reserve. To give another example, even

as Poland added aggressively to its gold

reserves, it was calling home gold that has been

held in its accounts at the Bank of England.

Meanwhile, nations around the world are

creating institutions to allow them to circumvent

dollar-denominated financial institutions.

US control of the international payments system

enables it to enforce sanctions against foreign

countries, and then to sanction countries that

assist others bypass existing sanctions. The

proliferation of these US sanctions has spurred

the development on non-dollar, non-US

settlement alternatives of foreign transactions.

China India Mexico Russian Federation Turkey

Data as of 30 September, 2020

Sources: Central Banks, ICE Benchmark Administration, International Monetary Fund, World Gold Council;

Tonnes

2.000

1.500

1.000

500

Q1 ‘00 Q1 ‘01 Q1 ‘02 Q1 ‘03 Q1 ‘05 Q1 ‘06 Q1 ‘07 Q1 ‘08 Q1 ‘10 Q1 ‘11 Q1 ‘12 Q1 ‘13 Q1 ‘15 Q1 ‘16 Q1 ‘17 Q1 ‘18 Q1 ‘20


43

“Washington is increasing its use of sanctions. While the Clinton administration averaged around 8 new sanctions designations per year, the Obama administration average more than 525 per year, and the Trump administration added more than 975 per year.”—Defense Priorities

It is a mistake to think that such viewpoints are

held only by counties at which the US is at odds.

Since the Iraq war a host of new bi-lateral and

multi-lateral trade agreements have sprung up

among nations, as even traditional trading

partners have chaffed under imperialist

financial edicts issuing from Washington and

have been developing multi-polar trade and

payments systems. Most significant is the recent

announcement by British, French, and German

officials that a new system that will enable them

to bypass the US SWIFT payments system is now

operational, and indeed SWIFT volume is already

in decline. The new system, INSTEX, will initially

allow countries to circumvent the US and

continue to trade and settle accounts with Iran.

Anticipating ramped-up sanctions policies from

the Biden administration, Russian Deputy

Foreign Minister Sergei Ryabkov expressed a

view that is driving the development of

non-dollar mechanisms. “We need to barricade

ourselves against the U.S. financial and

economic system to eliminate dependence on

this toxic source of permanent hostile actions.

We need to cut back the role of the dollar in any

operations."


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44

“As a share of overall central bank reserves, the USD’s role has been declining ever since the Great Recession…. “Central banks across the globe are also adding to gold reserves at their strongest pace on record. 2018 saw the strongest demand for gold from central banks since 1971 and a rolling four-quarter sum of gold purchases is the strongest on record.

“To us, this makes sense: gold is a stable source of value with thousands of years of trust among humans supporting it.”

—JPMorgan Chase

GLOBAL FLASH POINTS

45

In chemistry a flash point is the temperature at

which volatile vapors can be ignited. In geopoli-

tics flash points are places of volatility, ones in

which developing conflicts can suddenly be

ignited.

The complexity of seething conflict among

tribes, religious factions, military forces, territori-

al claims, and commercial interests, to say noth-

ing of the explosive forces involved in modern

power politics and warfare, have the power to

devalue and destroy currencies, hasten the end

of the global reserve dollar, and topple the world

monetary order.

Like the era of Pax Britannica which after a

century ended with World War I, the unipolar

world of Pax Americana is now ending, making it

more important than ever to be aware of global

flash points that, ignited, can drive a worldwide

flight to the safety of gold and the price of gold

to unimagined heights.

After a presidential campaign characterized by

few appearances and even less vigorous ques-

tioning, many are unclear about President

Biden’s foreign policy priorities. In reviewing

likely flash points for this report, we turned to

Senator Rand Paul for an assessment.

“The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.”

—Ernest Hemingway,

Notes on the Next War: A Serious Topical Letter


China:

GLOBAL FLASH POINTS 06w

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In the confirmation hearing for Antony Blinken to

serve as President Biden’s Secretary of State,

Senator Paul, a member of the Senate Foreign

Relations Committee, questioned Blinken at

length about US foreign interventions.

Blinken, now the face of American foreign policy,

has supported the Washington regime change

consensus and US military interventions in Iraq,

Syria, Libya, and Yemen, as well as the further

expansion of NATO to include Georgia, and the

isolation of Russia.

So, we asked Senator Paul where the Biden

administration was likely to find its first target of

opportunity for foreign interventionism.

Without hesitation Senator Paul answered,

“Syria.”

Much of the interventionist foreign policy

establishment, he explained, is embarrassed

publicly (although not necessarily privately) by

the Iraq war. Many of them express second

thoughts about the toppling of Libya. But they

remain committed to action in Syria. Blinken’s

hardline view is that US forces in Syria in the past

were inadequate.

Senator Paul’s read of the situation was

prescient. Within days of our speaking, Biden

ordered missile strikes on a site in Syria. Few had

noticed that immediately upon Biden’s

inauguration, US military convoys began moving

into northern Syria. By February, the US was

building a new base in Syria near the border with

Turkey and Iraq. Russian Foreign Minister Sergei

Lavrov said he has earned that the US has plans

for long-term occupation of Syria.

US policy in Syria has been just as confused and

conflicted as in regime change wars elsewhere.

Few Americans realize that the Pentagon was

arming and supporting jihadis in Syria who

were fighting with extremists armed by the CIA.

Similarly, the US has been taking sides in the

region in an ages-old Sunni-Shiite schism

about which most Americans care nothing. It

has been a policy only weapons merchants

could love. And a costly policy as well, one that

helps explain why the US is responsible for

more than 40 percent of total world military

spending and runs deficits at levels

characteristic of World War II.

All of this is to make clear that US involvement

in the endless wars in the Mideast is not coming

to an end. The cost of this overstretch will show

up in an increasingly debased dollar and in a

global clamor for gold. That should have a

sobering effect on US policymakers, but it does

not seem to check their appetites. Meanwhile,

the counterparties to US objectives in the

region are becoming more prominent. One

cannot miss the development of an alliance

among China, Russia, and Iran.

To no one’s surprise, Biden nominees in

confirmation hearings sang from a harsh hymnal

on China. Blinken: President Trump "was right in

taking a tougher approach to China." Director of

National Intelligence Avril Haines: The US should

take an "aggressive stance" against Beijing.

Secretary of Defense Lloyd Austin: “We have to

make sure that we check [China’s] aggression.”

CIA Director William Burns accused China of

“wolf warrior diplomacy.” The danger posed by

China was described so vividly that it is hard to

believe the US outspends China militarily by 9.5

times.

46

Russia:


47

Still, one must wonder if White House posture on

future issues with China will be colored by little

understood relations between the government of

China and the Biden family. In any case the

foreign policy establishment is bigger than the

Bidens, and the South China Sea is crowded with

military might and the possibility of an incident

or accident is ever present.

China remains an important foreign creditor of

the US, but it has slipped to second place

behind Japan. China knows that its US

treasury holdings are vulnerable to changes in

the dollar’s value, which is why it has sharply

reduced its dollar portfolio. China clearly

understands gold better than the US

establishment. Its appetite for gold has been

voracious, and unlike the US, it has encouraged

gold accumulation by its people.

President Biden issued a statement in

February condemning Russia’s annexation of

Crimea. “The United States continues to stand

with Ukraine and its allies and partners today,

as it has from the beginning of this conflict,”

Biden said. “The United States does not and will

never recognize Russia’s purported

annexation of the peninsula, and we will stand

with Ukraine against Russia’s aggressive acts.”

Biden named Victoria Nuland, the

interventionist who was instrumental in the $5

billion US plan that toppled the Ukraine

government in 2014, to a powerful post in his

State Department, Under-Secretary for

Political Affairs. Like China, it may never be

known how still-murky commercial interests

between the president, his son Hunter, and

Ukraine will color US policy during the Biden

presidency. With fewer than six weeks in office,

Biden funneled a fresh $125 million in war

resources to Ukraine.

Iran:

Perhaps out of deference to former President

Obama and his loyalists, Biden has indicated that

he would renegotiate Obama’s 2015 JCPOA

nuclear agreement with Iran that President

Trump withdrew from in 2017. But some observers

suggest that there is little enthusiasm for doing so

among the hawks on the Biden team. It is possible

they are “slow-walking” the process, asserting

preconditions and endless diplomacy as a means

of shelving the nuclear agreement entirely.

Korea:

President Biden conspicuously failed to mention

North Korea in his maiden foreign policy speech

at the State Department in February.

North Korea’s centrally planned economy is in an

endless state of deep failure. Kim Jong Un called

the past five years the “worst of the worst” time

for the country. Even so, he called for asserting

still more state control of the economy.

That was quickly followed by a parade of North

Korea’s latest missilery. It is in times of its

greatest economic stress that North Korea acts

most recklessly.

Meanwhile, Russia complains that the US

persists in crowding it with war games along its

western borders (NATO held its largest military

exercises in 25 years there last year) and is

continually testing Russian air defenses in the

Baltic and Black Sea regions. At the same time

Russian fighters have been buzzing US ships. It is

a close quarters environment, one also thick with

the possibilities of an accident and escalation.

As noted earlier, Russia, once a significant credi-

tor of the US treasury has almost completely

de-dollarized its reserves in favor of gold.

GLOBAL FLASH POINTS 06w

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48

The Biden-Harris foreign policy team seems

willing to continue President Trump’s policy on

Venezuela, including sanctions and backing

former National Security Advisor John Bolton’s

handpicked would-be coup leader there, Juan

Guaido. Because it has the world’s largest oil

reserves, a war for power in Venezuela is certain

to draw greedy adversaries and outsize

resources from far corners.

Space does not permit a thorough description of

the risks these flash points represent, but they

have been chosen from among others because

of the direct impact each can have on the

international monetary order and causing the

gold price to skyrocket. That is not to say that

other hot spots like Ethiopia and Somalia cannot

escalate into wider conflicts. There are border

disputes involving other nations, India and

Pakistan, and India and China that carry some

threat. Turkey’s President Erdogan seems to

have a dangerous affinity for brinksmanship. His

policies and relations with Russia merit close

attention.

It may be that Biden’s “defend democracy

globally” is more sloganeering than policy

pronouncement, but empires are not good at

assessing the extent of their overstretch.

Gibbons explained long ago that the Roman

Empire, given to bankruptcy, bailouts, and

inflation, collapsed of its own no-longer

supportable weight.

Venezuela:

When geopolitical flash points ignite, gold races

to new highs. It did so after the US embassy in

Iran was seized in November 1979; it kept

climbing with the Soviet’s invasion of

Afghanistan. In March 2002, after Vice President

Dick Cheney quietly let the Saudis know the US

was going to embark a wide war in the Mideast,

gold moved above $300 to stay and then

marched to record highs over the next nine

years.

To reiterate what we said in our last survey of

global flashpoints, “While wars are one of the

worst things in the human experience, they drive

investors to the safe havens of gold and silver.

With that in mind, investors must always be

clear-eyed about the prospects for war and

realistic about the approach of military

confrontations.”


50 YEARS ON…

“Something too big to paper over is clearly on its way.” —John Rubino

49

The outlook for the US economy for the

remainder of this year is the subject of vigorous

debate among economists. Some believe that

with vaccinations, the development of natural

herd immunity, and growing public rejection of

state lockdown measures, the economy will

surge. They forecast a powerful recovery due to

pent-up consumer demand for durable goods:

appliances, furniture, automobiles.

Others expect there to be long-term aftereffects

from the lockdown, “scarring,” that will continue

to suppress demand in other places in the

economy, especially personal services,

entertainment, leisure, and travel.

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50

Because there is merit to both arguments, the

outcome may be a less robust recovery than the

optimists believe. Pent-up demand that is fueled

by stimulus checks will soon run out of gas. Still,

the outlook may prove to be better than what the

pessimists expect. People will certainly begin to

travel more, job numbers in hospitality are

improving, and people are even returning to movie

theaters, although is lesser numbers that before.

Gold will benefit in either case. If the recovery is

less than robust, it will drive additional

deficit-financed social welfare spending,

including Biden’s infrastructure proposals,

across the finish line. The infrastructure

package is already expected to require between

$2- and $4 trillion over the next ten years.

The higher interest rates that accompany

recoveries will take a toll on the stock market. As

the 10-year Treasury yield climbed a full percent

between August and March, high-flyers like Tesla

had their wings clipped. But as noted at the

outset, the Fed is the handmaiden of Wall Street.

It is the author of the bubble economy. To that

end the Fed is currently buying down interest

rates at the pace of $120 billion a month to

levitate the stock market. If rates rise much

further, expect another tantrum from Wall Street

like the one in 2013 that will see the Fed respond

by opening the liquidity gusher even wider.

Chairman Powell: “Well, so what we said about

the bond-buying program is that it will continue

at least at the current pace [emphasis added]

until we make substantial further progress

toward our goals.” Their goals are explicit:

higher inflation. The signs are already visible

that they are about to get it “good and hard.”

That bodes ill for the budget. As interest rates

normalize, the cost of servicing the debt begins

to skyrocket. Meanwhile, there is no prospect or

political will to tame the ballooning deficits

ahead. The Fed will be forced to monetize more

debt than ever.

The endgame is this: The Fed will be forced to

inflate away the debt. It is a measure of

desperation, but one used many times by

governments, the biggest debtors of all. A five

percent inflation rate depreciates a

government’s $28 trillion debt by $1.4 trillion a

year. Ten percent inflation does it twice as fast.

Through the ages inflation has been

government’s go-to policy for unsustainable

debt. It is debt default by stealth. As the state

defaults on a portion of its obligations in this

manner, it hopes nobody notices. Indeed,

inflation is only effective if there are

unsuspecting victims willing to hold the currency

that is being debauched.

Inflation robs retirees, anyone on a fixed income,

savers, and bond investors alike. When the unit of

accounting is unstable, everyday commerce

bears abnormal risk and fair dealing is replaced

by widespread exploitation. Because the value

of the currency tomorrow cannot be relied upon

today, inflation collapses people’s time horizons

and their willingness to provide for the future. In

subverting thrift and capital accumulation, it

precludes a return to prosperity.

Never mind that it will destroy the capital base of

the country and shred what remains of our social

fabric. But like the Saturday morning hangover,

the only real cure was moderation on Friday

night.

Today’s monetary hangover should have been

foreseen – and thus avoided – long ago.

This report began with President Nixon’s 1971

announcement that the US was suspending the

dollar’s convertibility to gold. “Temporarily,” said

Nixon.


51

It was Milton Friedman who once quipped that

nothing is as permanent as a temporary

government program. Now, 50 years on, the

dollar remains unbacked and issued without

disciple and without regard for its long-term

value. Abandoning the gold standard meant

that the Fed was free to expand monetary policy

with ease.

And predictably enough, the money supply has

grown relentlessly while the dollar’s purchasing

power has fallen just as relentlessly.

50 years on, US GDP has increased 1,800

percent. But the money supply has exploded, up

more than 2,800 percent.

50 years on, the purchasing power of the dollar

has collapsed. The goods that would have cost

you $150 in 1971 today cost you $1,000 today.

Sources: BLS; Board of Governors

50 Years On – US Dollar Purchasing Power (red) and US Money Supply (green).

1980 1990 2000 2010 2020

280

240

200

160

120

80

40

0

21,000

18,000

15,000

12,000

9,000

6,000

3,000

0

Ind

ex

19

82-

198

4-1

00

FRED Consumer Price Index for All Urban Consumers: Purchasing Power of the Consumer Dollar in U.S. City Average (left)

M2 Money Stock (right)

Billio

ns o

f Do

llars

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52

But then there is gold. Gold was $42 in August

1971. At the recent gold price of $1,700 – following

a correction – gold is up 4,000 percent, far

outpacing both money growth and GDP growth.

But one need not get lost in the numbers. It

should be sufficient to note that honest people

exchange things of value for other things of

value they wish to purchase. But when the State

creates a fiat money system, it and its cronies

are giving something of no value for things of

real value.

And that is no way to run a country. It is because

gold (and silver) are honest money that they

have been prized in that capacity by people

everywhere for thousands of years. Today the

gold price is a referendum on the quantity and

quality of the dollar. At first only a select few who

understand the reasons for the developing dollar

crisis secure themselves with gold. As conditions

deteriorate, more will do so. Eventually the

trickle will becomes a flood with gold racing

higher at each step along the way.

It is too late for the nation to go back 50 years

and undue what has been done.

Nevertheless, you and those like you who can

read the signs of the times, are able to protect

yourselves, your wealth, and your retirement with

precious metals. It is for you that we have written

this report.

Selected Bibliography

https://www.foreignaffairs.com/articles/unit-

ed-states/2020-12-08/monopoly-versus-democracy

http://www.crfb.org/papers/analysis-cbos-february-2021-bud-

get-and-economic-outlook

https://www.cbo.gov/publication/56970

https://www.treasurydirect.gov/govt/reports/pd/pd.htm

https://cdn.mises.org/The%20Transformation%20of%20the%20Ameri-

can%20Economy,%201865-1914_2.pdf

https://www.bea.gov/sites/default/files/2021-01/gdp4q20_adv.pdf

https://fortune.com/2021/01/25/china-us-foreign-direct-investment-fdi-2020/

https://www.manhattan-institute.org/joe-biden-has-11-tril-

lion-spending-plan-can-he-enact-it

https://www.washingtonpost.com/opinions/we-were-right-to-wor-

ry-about-the-nations-fiscal-future-but-i-know-when-to-fold-em/2021/01/27/dae7

52fc-6023-11eb-9061-07abcc1f9229_story.html

https://www.gold.org/goldhub/research/gold-demand-trends/-

gold-demand-trends-full-year-2020

https://www.gold.org/goldhub/data/monthly-central-bank-statistics

https://www.gold.org/goldhub/gold-focus/2021/02/after-fill-

ing-2020-us-investors-remain-hungry-gold-bars-and-coins

https://www.defensepriorities.org/explainers/recalibrat-

ing-sanctions-to-preserve-us-financial-hegemony

https://www.stripes.com/news/us/global-defense-spend-

ing-led-by-us-and-china-hits-new-high-1.663520

https://www.usatoday.com/in-depth/news/world/2021/02/25/us-mi-

litary-budget-what-can-global-bases-do-vs-covid-cyber-attacks/6419013002/

The 2021 Global Gold Report

Call Red Rock Secured now at 844-824-5051 to getstarted.

Or email us at [email protected].

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