Here are the insights from James Turk, founder of GoldMoney, during a media interview this week. If you are willing to step out of 'speculating on gold' and understand the monetary logic and sentiment behind gold, this conversation can be considered a highly valuable 'financial philosophy class.'
Host: The end of this week has been crazy. The dollar suffered a heavy blow on Friday, especially against the yen—it once rose to 151, then suddenly plunged to 148. The same goes for Europe. After the euro strengthened, it became more expensive for Americans to exchange dollars for euros; what used to be $1 for 0.98 euros is now only 0.84 or 0.85. Everything has become very sensitive; smart money and wealthy individuals are watching the exchange rate and gold.
Answer: Currency is being severely undermined by governments around the world. This reminds me of the 1970s—I experienced and lived through that decade of 'stagflation.'
Last Thursday, the core PCE data from the Federal Reserve was again above expectations, moving further away from their 2% inflation target. The non-farm data released on Friday was also surprising, showing more weakness than expected. The two factors of stagflation—economic weakness and high inflation—are a nightmare for holders of currency. You never know if central banks will further 'devalue' to stimulate the economy.
An increase in gold prices means a depreciation in fiat currency purchasing power, transferring wealth from those holding fiat currency to those holding gold. Gold itself does not create new purchasing power; it is a 'static asset' that does not generate cash flow; its role is to 'preserve value.' For example, the amount of crude oil that can be bought with one ounce of gold today is about the same as it was 70 years ago. Gold cannot make you richer, but it preserves purchasing power. This is also why I advocate holding gold instead of fiat currency—because behind fiat currency are only the promises of politicians and central bankers, and such promises are fundamentally unreliable.
Host: Let's talk about the 'fear index' you published, the ratio of M2 money supply to the official gold reserves of the United States. According to your chart, this ratio was as high as 30% during the Great Depression—a total collapse, a catastrophic crisis where countless people lost everything and starved in the streets. In the 1970s, when the gold standard was abolished, the ratio also reached 12%. During the 2008 financial crisis, the price of gold surged from $250 to nearly $2000, while the ratio rose from 5% to nearly 6%. But now this ratio has dropped to over 3%. Where do you think this ratio will go in the future? Currently, it is 3.9%. In 2008, it was 5%, in 1980 it was 12%, and during the Great Depression it was 30%. Where do you think it will head?
| Turk proposed an important logic: Gold price = M2 money supply × Gold's proportion in M2 (fear index)
Answer:
Fiat currency will ultimately collapse. Either it will collapse like Venezuela, or it will return to a constitutional currency system, as was the case in the early days of the United States—when the constitution directly enshrined gold and silver as legal tender.
When Nixon decoupled the dollar from gold in 1971, the public still believed in gold because they had used gold as currency. But as the older generation passes away, this awareness has faded, and the younger generation is just beginning to recognize the significance of gold and silver.
The ratio of gold reserves to M2 will rise significantly; whether it reaches 30% depends on what central banks and governments do. Today, gold is quietly returning; it is not just central banks buying it, ordinary people are also taking action. People no longer trust central banks; they are playing the role of 'central banks' themselves by hoarding gold.
The logic of the fear index is as follows: M2 represents a certain purchasing power, backed by a pile of commitments on the bank's balance sheet. But once confidence is lost, like in the crisis of Silicon Valley Bank, gold will rise, which is the meaning of the fear index. Currently, this index is historically low; if it doubles, the price of gold will also double (assuming M2 remains unchanged and gold reserves truly exist). But the reality is that M2 is likely to continue to grow, as central banks are adept at 'printing money.' This means gold prices will rise significantly. Will it reach 30%? Or 20%? I don't know. But we will definitely rise a lot. Therefore, we should focus on this ratio, not just the price of gold itself; this ratio shows that gold is severely undervalued relative to the money supply. You can hold gold with peace of mind; it not only retains its value in the long term but also increases purchasing power.
Host: If America's M2 rises from $22 trillion to $44 trillion, and then the gold ratio returns to the 12% level of the 1970s, gold prices would need to multiply by 6. From 3.9% to 12%, then multiplied by 2 times M2, that equates to a 24% increase—about a 6-fold increase, right? In other words, the price of gold could rise to around $20,000. I may not have calculated precisely. What if it returns to the 30% level of the Great Depression? That would indicate a 15-fold increase—meaning gold prices could reach $51,000. What do you think?
Answer:
Indeed. But this is still based on assumptions—such as the gold in Fort Knox really still being there. We initially said we would audit the gold reserves, but then everything went silent; perhaps the gold has long been gone.
Host: Silver seems to be held down by a boot, with someone preventing it from exploding. What do you think about silver?
Silver will eventually 'take off'; it is just a matter of time. As long as it breaks through $50, it will enter a major uptrend. Right now, I am mainly focused on the gold-silver ratio. A few months ago, the gold-silver ratio surged to 100, and I said it should drop, and it indeed fell to around 86-87; now it has risen back to 90 (i.e., one ounce of gold ≈ 90 ounces of silver). But the trend is changing. From 2010 to April 2011, the gold-silver ratio fell from 65 to 30. If I remember correctly, that was how it fell. Will the future be a decline from 90 to 30? I'm not sure, but if it does drop, it will be the moment of 'rocket launch' for silver.
The future cannot be predicted, but we know what is undervalued and what is overvalued. The stock market has many bubbles, while precious metals are still severely undervalued. I know where I am willing to allocate my assets.$BTC $ETH #美国加征关税 