Gold is Still Dirt Cheap?

GOLD > $10,000 oz Will Just be History Rhyming

Scary deflationary headlines out of the east this week, specifically dealing with their long bloated now collapsing real estate bubble.

Concerns of eventual contagion are warranted given the size and scale of the headlines and numbers involved.

Losses by the now bankrupt filed Evergrande Group are estimated to be over $300 billion. And their failure is perhaps only the tip of the iceberg in collapsing Chinese real estate values.

Some real estate indexes like high yield in China are already down -82% since the 2021 peak to the recent trough.

The fiat Chinese yuan hit its lowest level in 14 years vs the fiat US dollar this week triggering memories back to 2015 when volatility in the then devaluing yuan set off a minor crisis.

Locally in China premiums on physical gold are at near all time high levels, Chinese locals who cannot get their capital offshore are certainly turning to gold bullion at the moment.

China's total debt to GDP exploded following the 2008 global financial crisis, and perhaps were stumbling upon a moment of reckoning and returning back to a more fair value reality ahead.

Respected financial onlookers seem to have two takes on this week's bad Chinese headlines. Either it's the CCP trying to clean house internally through real estate bubble popping, or things are even worse than being reported and might spread out into a global contagion to come.

Turning back west and to the USA, historically high government fiscal spending over the last few years has certainly helped to delay the coming recession.

While economists and financial experts like David Rosenberg continue shredding the silly still ongoing 'soft landing narrative'.

This chart here shows the gold price in fiat US dollar terms throughout this full fiat currency era now near 53 year running.

The bottom half of this chart shows the ongoing US 10 year bond vs 3-month Treasury bill spread. When it inverts or goes below the black colored dash line, recessions follow.

Over the last five decades plus the nominal gold price in fiat US dollar terms has averaged returning just 8% percent per year when this yield curve is above the black dash line, not inverted.

But when the like it presently is now, yields inverted below the black dash line, gold has on average returned nearly 23% per year over the last more than half century of time.

In the second half of today's SD Bullion market update, we're going to go even deeper into the past, further report from the present, and look forward to the future. As the fiat Federal Reserve and US dollar system appear destined for a future situation where accumulating US government debts and deficits produce increases in inflation that “dominate" central bank policies into a corner that cause gold to inevitably again go manic with future valuation escalations.

Stick around.

The silver and gold market trading this week was mixed with relative strength in silver compared to gold.

The spot silver market closed slightly up finishing near $22.75 oz bid while the spot gold price in fiat US dollar terms fell below $1900 to close the week near $1890 oz bid.

The spot gold silver ratio as a result fell slightly to close the week at 83.

The fiat Federal Reserve recently published a paper on their Saint Louis bank's website entitled "Fiscal Dominance and the Return of Zero-Interest Bank Reserve Requirements". I'll leave you a link to that 11 page document in the show notes, but to sum it up in short.

The US economy is on the road to adding more debt and having massive unfunded liability piles increasing due in the next decade plus. Politically at the present and unlikely any time soon, no political cohort is willing to take on this building debt crisis challenge, so the author of this paper describes a potential partly effective solution where US fiat financial authorities make banks hold US bonds and notes to the tune of 40% of their reserve requirements unlike the zero requirement they enjoy at the moment. 

You see the US government will have so much debt to sell in the coming decade that the market won't be willing to buy or absorb, so instead fiat financial authorities will make the banking system buy their bonds by force in this scenario. The catch is the banks will get no interest payments, in other words effectively nationalizing the US banking industry, and I would add not coincidentally around the same time that fiat Fedcoin accounts will likely also be coming into reality as well.

The author argues doing this coercive zero interest 40% bank reserve requirement policy would likely help keep the coming secularly high inflation rates lower than what they otherwise might be.

But ultimately massive financial repression "remedies" like this crushing fiat US dollar savers and haircutting long duration bond holders will surely lead to more savers choosing physical bullion and precious metal proxies over banks or bonds.

And while at the moment, most sleepwalking western investors have near no gold or precious metals investment allocations, averaging near a paltry 1% collectively currently.

The following is a dissertation about how lopsided things are at present versus, where they have historically gone, and potentially where things might again go in the future in terms of gold price and valuation escalations.

This week, natural resource investors Leigh Goehring & Adam Rozencwajg published the following report called "Golden Foresight: When Speculation Meets History".

I'd like to read and show you a few highlights, of course I will backlink their work in this week's show notes for those who want to read it in full.

That is going to be all for this week's SD Bullion Market Update.

As always to you out there, take great care of yourselves and those you love.

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James Anderson
James Anderson
Senior Market Analyst & Content

A bullion buyer years before the 2008 Global Financial Crisis, James Anderson is a grounded precious metals researcher, content creator, and physical investment grade bullion professional. He has authored several Gold & Silver Guides and has been featured on the History Channel, Zero Hedge, Gold-Eagle, Silver Seek, Value Walk and many more. You can pick up Jame's most recent, comprehensive 200+ Page book here at SD Bullion.

Given that repressed commodity values are now near 100-year low level valuations versus large US stocks, James remains convinced investors and savers should buy and maintain a prudent physical bullion position now, before more unfunded promises debase away in the coming decades...