Steve Henningsen Continues
Anyway I think the next several months will answer these questions and bring clarity to the new financial system on the horizon. With the turbulence that may lay ahead, I think the price of gold may be the least important issue for most people.
Btw- I hope all is well up there for you and your family, as I know the oil industry has hurt the local economy for you guys. Jcollins
They don’t get to me my friend. I’m try to help those who fall for the whole doom and gloom gold bug script. I’m sure there are few that like to think they get to me though.
Things are okay up here. Lots of job losses, but I’m still chucking along and trying to diversify the company business outside of oil. But with all commodities down it’s challenging for sure. Adam Sragovicz
Interesting. One question – “the USD will depreciate 20-30%” …. in relation to what? Thanks Jcollins
It’s main trading partners. Onrgaia
About an hour ago I was going to ask on the September Foreshadowing thread if you had another post cookin’ on the stove because I was feeling really hungry. Now I feel full. As always, you rock and thanks for making it a FreePOM. Just reposted it at the usual place. Cheers. Jcollins
You are a great friend. Thanks for the support. Wim
When will the usd start to decline against the EUR (main trading partner) ? Jcollins
Depends. I’m expecting it to start within a range, say the next 3 to 6 months. Adam
Looking to clarify my understanding of your forecast…If the USD declines 20-30% against the Euro, and gold depreciates vs. the dollar (let’s say 20%), are you in effect saying that gold is going down 40-50% against the Euro? This scenario seems highly deflationary and it’s hard for me to imagine the high level of economic activity you are forecasting under this scenario. thx. Jcollins
I don’t understand the flow of logic in your question. The value of gold is not pegged to the USD. The only reason gold will go up when the dollar goes down is because there has been a lack of an alternative safe havens.
With the euro and yuan, and eventually the SDR, there will be other safe havens. As the amount of yuan and euro in the foreign reserve accounts increases, that will build confidence in those currencies to act as safe havens in times of crisis.
This will give alternatives to the dollar, and in effect provide three suitable safe havens as the forthcoming crisis deepens. Does that help explain it better? Jcollins
In addition Adam, as I’ve stated previously, gold could play a role in the SDR. This would likely be the one thing that would stabilize the price of gold. Let’s see what happens. Could take awhile though, unfortunately. Or could happen sooner than any of us think, in response to the next crisis. Tony Graupp
Greetings JC I respect your knowledgeable opinions and consider your thoughts…BUT…
Ray Dalio, the manager of the worlds largest hedge fund, with over $150 Billion under management has this to say…
“If you don’t own gold, there is no sensible reason, other than you don’t know history, or you don’t know the economics of it.”
I have investments in gold, and I think when the East Asian countries corner the markets by purchasing all the available supply, which they are currently doing to the tune of 40-70 tonnes a week out of the Shanghai Gold Exchange…the amount of which is greater than the annual current world mining supply…some thing is going to happen..
Some how I still believe in the old adage, the “”He who holds the gold, makes the rules””
Well currently the US holds the most gold at more than 8000 tonnes.. This may change Take Care Tony Adam
Yes, thank you. casmar5503
When? This time frame seems awfully close to the time that Martin Armstrong has said that America loses its #1 economy. In fact I noticed your gold prediction sounds like his too. He doesn’t talk about imf and sdr’s as much as you but, he has mentioned it. I’m curious about what you think happens in 2017-2020 (pre-hyperinflation)? Jcollins
I’ve never read anything by Martin Armstrong so I can’t honestly say. And what hyper-inflation are you talking about? My analysis does not include hyper-inflation in the foreseeable future. At least not for the US or any other major economy. So the framing of your question doesn’t work for me. casmar5503
Let me clarify my earlier statement. Your prediction of the value of dollar to the euro being less in 6-9mo. ISN’T similar to Armstongs time frame. He thinks the dollar will enjoy appreciation for a couple years due to emerging market problems. Jcollins
I’m unable to reconcile the flow of logic in your two separate comments. I’m not sure what you are asking. In addition, I didn’t say 6 to 9 months for euro/dollar changes, I said 3 to 6 months. casmar5503
Yes you are right you did say 3-6. The dollar seems to be getting stronger and there are signs of weakening emerging markets that seem to point to an even stronger dollar well beyond 6months. The euro appears threatened by a brexit or other exits from troubled countries which weakens confidence in the euro as an investment. What about the euro makes you believe it will not continue to depreciate for the next couple of years? Jcollins
As stated, the dollar exchange rate arrangements will begin to unravel as a response to the strengthening dollar. There are only a handful of alternative currencies that will be able to handle larger volumes of capital flow and reserve accumulation. The euro is one of those. As is the yuan. casmar5503
You responded quicker than I could add … But seriously? You never read any of Armstrong…? He is worth a look just like your site is worthy as credible blog! Much respect for your analysis. Jcollins
Haha, sorry friend. I’m out of town for work and sitting here in the evening responding while eating sugar-ice cream. It’s flowing fast. Yes, seriously, I’ve never read anything from him. Thanks for the respect. casmar5503
I’ve been reading your postings since I read the analogy using water in an ice cube tray to explain how QE and liquidity affected the economy. Pure brilliance.???? Jcollins
Sorry if I come across as being difficult. I don’t mean too. I’m very literal and don’t often get the subtleties of non-literal and insinuated comments. Ozymandias
I am quite old enough to remember the high inflation and gas shortages during ‘The Peanut’ years (1977-1981). I had to work three separate jobs (days, nights, and weekends) to feed and provide for my family.
The $USD will be devalued by at least 30% on the first pass and then a few months later after some of the shock is absorbed I strongly suspect that there will be a second devaluation of at least another 30%. A total of a 50% devaluation of the $USD within a 12-18 month period amounts to a ramp towards hyper-inflation.
Inflation is and has always been a means by which governments and money lenders stealthy steal labor and wealth. Jcollins
A couple things, the US government will have increased opportunity to tax the population, as there will be more jobs from increased exports. The velocity of money will likely remain stable.
And last, I see the amount of USD in circulation actually decreasing as the international demand for dollars erodes further and deficit spending at home decreases. The pieces will all flow together with some rumblings of discontent, but nothing close to being defined as hyper-inflation. I respectfully disagree my friend. Ozymandias
Thank you for you response. I have personally experienced high inflation and its destructive affects. Therefore, in these regards I sincerely hope that you are correct and my analyses and expectations are incorrect. Speedspirit
“What we are witnessing in the monetary world today is the re-balancing of currency as opposed to the collapse of currency.” JC
Very precise statement. Couldn’t agree more. And I also agree that central banks around the world have to much power and control to let hyperinflation happen. Not yet at least, more like by 2032.
And I concur with Casmar about Armstrong, who has built a super computer which predicts markets without bias or emotion and incredible track record.
The computer predicts tough choices to be made Oct 1 thru next year but most likely the stock market low in March 2016. But new highs in 2017, panic cycle 2018, bottom 2020 then economic confidence till 2032. Then TSHTF. After all I have come to understand thanks to JC this repeating of cycles fits perfectly with POM. Diana Montijo
This IS a compelling article, but what do you say about the track record of fiat currencies? I am not saying this as an argumentative point. It is a legitimate question. In the 5,000 years of monetary history 100% of all fiat currencies have failed.
They all return to their intrinsic value, which is zero since they are backed by nothing. Throughout history, precious metals have proven to be the only form of real money. I thought I had done my due diligence, but now I am not so sure about the investments I made to protect my retirement assets.
Only the powers that be know how this will all play out. It has already been decided. The majority of us are left scurrying to find a safe place to invest to protect our hard earned money. (Respectfully). Jcollins
Though I share your view on fiat currency, I have yet seen the conclusive evidence that they all return to their intrinsic value of zero sufficiently quantified to 100% satisfaction. On the flip side of this, gold is deflationary by nature, which is why gold standards are eventually debased and abandoned.
Fiat currency today, for the most part, serves a function as the evolution of money. Some currency in existence will inevitably be demonetized and new currency issued, and some currency will carry on in their evolution process to help construct the broader and more representative SDR.
The SDR basket of currencies will evolve into a real currency, like the European Monetary Unit basket evolved into the actual euro currency. We will see this evolution/consolidation of most existing currency before we see them reach to zero. This process will take decades.
There is a lot of unsubstantiated information out there Diana. Historical trends, both accurate and made up, don’t always equate to future trends. There is a wealth of information on this site, provided by both myself and other readers. Hopefully you can find value in it and realign your own personal due diligence to increase your comfort level. Abruzzese1
Hi this is my first time posting but I have been reading here for the last 6 months. Despite being a somewhat intelligent and financial literate person (I’m a CPA) I do struggle to fully understand all of your writing.
If the USD were to depreciation 20-30%, this would in effect cause price inflation relative to goods/services, correct? Would a good hedge against this be an investment in TIPS treasury inflation protected securities rather than holding cash? (I do not consider any responses to my question to be investment advice and my question is purely hypothetical.) Jcollins
The cost of imported goods would increase. This would equate to inflation, but will be made up by wage increases and more higher paying jobs. No doubt there will be some losses on those holding dollar denominated investments.
I’m not familiar with how TIPS works, so I’m hesitant to express an opinion either way. One measure I use is that countries with trade deficits, like the US, will have their currency depreciate in order to increase exports. Countries with a trade surplus, like China, will have their currency appreciate in order to reduce exports. Currency investment strategies should consider these balance of payments corrections. Cadwaladr
Thanks for another great post, JC. I’m not a gold bug particularly, although, with my limited knowledge of monetary history, I can see why many predict collapse/hyperinflation. I can also see why fiscal adjustments and IMF substitution accounts might work to control the dollar’s depreciation, making this time different.
I would make the observations, though, that China and its SCO partners seem to envisage a more important role for gold in future, and that gold can rise in price whether the dollar and interest rates are falling or rising.
At the moment, the reported tightness of supply in the physical markets seems at odds (to say the least) with the price (which is set in the paper markets). Something feels very wrong.
I’m not an economist either, and I’m genuinely puzzled by why, JC, you think that inclusion in the SDR will give any currency safe-haven status? The USD, GBP, JPY and EUR are all already in the SDR basket, but their real purchasing power does nothing but fall over the medium and long terms.
I’ve always agreed with “diversification is protection from ignorance” (Buffett?), but see diversification as weakness. I see strength in knowledge and prefer to invest with high conviction and little diversification.
Eliminate the ignorance and the diversification. Needless to say, particularly in the present environment, it’s easier said than successfully done!!
What is particularly difficult, in my opinion, is for people like me, close to retirement, to choose assets for a portfolio which will provide adequate real returns and security of capital over what will hopefully be a long and adequately-nourished retirement.
It seems to me that the traditional safe havens (cash and bonds) are at risk from debt re-structurings and bail-ins. SDR futures, assuming the counter-party survives, would neither win nor lose very much?
The financial systems of Europe and China (not to mention Japan and the US) are riddled with asset-price and credit bubbles and inspire little or no confidence in me.
Perhaps I should buy the shares of US-based manufacturers and hedge the returns into RMB? Or perhaps the new American factories will be mostly Chinese-owned anyway?! Decisions, decisions!
If you were retiring next year, JC, what would your portfolio look like?!
Thanks again for your wonderful insights and thought leadership. Jcollins
I would hold mostly currency of emerging economies, especially those with trade surpluses and big foreign exchange reserves. A little gold. More silver.
And a constant stream of incoming knowledge from multiple sources. The ability to remain nimble and make quick decisions will be instrumental.
In addition, modernization and infrastructure development in the emerging economies will push commodities up again. It’s cyclical. Just may take a year or two more. Cadwaladr
Many thanks for your prompt reply, JC. Much appreciated. Your thoughts are very similar to mine. Incoming information is the least of our problems these days!
When you refer to “currency of emerging economies,” do you mean bank deposits and/or money market funds in those currencies and, if so, what would your assessment be of the risk posed by bank insolvencies/resolutions/bail-ins during the process of transition to the new Multilateral Financial System, please? I recall this article making a big impression on me: http://www.telegraph.co.uk/finance/personalfinance/investing/11686199/Its-time-to-hold-physical-cash-says-one-of-Britains-most-senior-fund-managers.html
In that context the idea of abolishing cash and making currency 100% digital sounds like a bad one to me.
Thanks again! Jcollins
I agree. And yes, my approach is that if you can’t hold it in your hand than it isn’t yours. As such, cash in hand is golden. shawn smith
Great post JC!! I think I finally got my head around this now. I also just read your e-pub and really enjoyed it. You have a real gift with words and an ability to see things my mind can barely understand. Since I’ve been a member here I feel better informed and have since pulled back on my metals greatly …. with more money going into currency.
Do you feel the sanctions will be lifted on Russia at some point in the coming year? That would send the Ruble to a more normal level. Tough for the EU to stay mad at their gas company during winter! Jcollins
Thanks Shawn. Comments like yours make it all worthwhile. In regards to the sanctions on Russia, they could be lifted when the fate of Ukraine is decided, or they could just eventually rot away through irrelevance, due to some of the changes we are discussing here. Carl Simmons
Great post JC. I just read your post and comments with awe and concern. I recently watched the Jim Sinclair video on the increase in cost of gold and was shaken.
I was about to change my portfolio into more gold until I read your post. Now I’m unsure if I should do so or wait. As you mentioned I have a diversified portfolio of foreign currency silver and gold. Again thanks for the great information. Stewart Fenton
JC – Another well written and informative post.
One thing, you mention alternative “Safe Havens” to the USD, being the euro and Yuan.
Given what we are currently seeing in both those jurisdictions (Euro – with many of the member nations being technically bankrupt, China which is experiencing multiple bubbles e.g. property and equities) I am interested in why you believe either of them would be safe havens. Cheers Jcollins
Not all euro zone countries have debt issues, and the US equity markets have dropped more than China’s since the beginning of the year. Don’t believe all the hype you hear or read.
The euro and yuan are slowly accumulating more and more in the foreign exchange reserve accounts. This will increase in the coming months and years. This is what will build further confidence in both currencies as safe havens in a time of crisis. Along with the USD, this will provide investors with three safe havens. Onrgaia
Off the cuff question JC…the other day I was thinking about when the USD became the reserve currency and how the Bancor was dismissed at Bretton Woods (reason unknown, maybe just wasn’t it’s time as the prototype needed to be tested, i.e. USD?, then a second Beta Test, the SDR?) Does this make any sense or am I waaaay off the mark?
I mean, if one wants to assure as best they can that something will succeed it needs to be tested and tweaked as it goes along. Jcollins
That could be the case. You are right, there is a lack on information on this matter. I know you have been researching into this, as have I.
Something tells me that to understand why the dollar was chosen over the bancor back in 1944 will tell us a lot about what is going to happen in the coming years. I keep coming back to it. Let’s stay on it. Anthony Graupp
Greetings again JC I think I can interject here, by saying the reason the US Dollar was chosen to be the reserve currency in 1944 is simply because it was backed by 22,000 tonnes of gold….
History buffs may remember to saying. “The dollar is as good as gold”
Countries could exchange there reserve currency dollars for gold, which France did, and finally Nixon closed to the gold window, because the US was down to 8000 tonnes, in a short 20 years…
Take Care Tony Rodriguez perez
Another big job, JC. Looking at your figures it not seems to be too much interesting exit from euro to yuan, except euro contries adopt domestic currencies, although I see this matter politically delicate. Have you some news about how things are developing now in Greece and arround European crisis? Regards Jcollins
The same trend is continuing in Europe. I would suspect we will see this bubble over throughout the fall. Watch for the introduction of systemic changes in the statements by officials.