Silver and Gold: Shelter From the Storm

What storm?  The stock and bond markets in the US are doing great, the media has sold the strong employment story, and all those nasty wars are far, far away.

So the top few percent are doing well and are sheltered from the storm, but what about the rest of us?  What storms are pounding us?

  • Currencies are based on debt, and those dollars, yen, and euros are created every day to keep various financial bubbles inflated. Global debt is $200 Trillion and cannot be repaid except with deeply devalued currencies.  Central banks are creating currencies, monetizing debt, reducing interest rates, and frantically promoting inflation to avoid deflation.
  • Inflationary forces are powerful. Huge devaluation of our currencies is occurring.  This extends the illusion of exponential growth and diminishes the debt hardship.  Most of what we need, such as food, energy, and health care will cost more every year.
  • Deflationary forces are also powerful. What happens when a few $Trillion of sovereign debt defaults and triggers many more $Trillion in derivative payouts – that might cause a chain of bankruptcies?  Expect deflation in our bubble assets.

What will central bankers and politicians do?  Extend and pretend, print currencies, create far more debt, and fabricate stories about how everything is good.

Look at the US national debt for the past 40 years.  The exponential trend is clear – up 9% per year on average and about 10% per year since the 2008 recession/depression.  It will rise until congress drastically cuts spending (just kidding) or some nasty reset occurs.  Exponential increases do not last forever so our current exponential increases in debt, stock prices, welfare, military expenses, and economic stupidity will end someday.

National Debt - Log Scale

 

Gold and silver are real money, while dollars, euros, and yen are paper substitutes that circulate as currency in place of money.  Look at the graph of the ratio of silver to the national debt for the past 20 years.  Note the long term rise in the ratio and especially the increase since 9-11.  Yes, there has been huge volatility in silver prices as shown by the ratio, but silver and gold – real money – are demonstrating their true value in the face of escalating debt.

R-SI-ND

Debt will increase and silver prices will rise more rapidly.  Since silver and gold have been crushed during the past four years while stocks and bonds have rallied to new highs, expect those trends to reverse this year.  When stocks and bonds decline central banks will accelerate their creation of currencies to reflate them and debt will increase even more rapidly, along with silver and gold prices.

Current (March 2015) Ratio                      0.87

US National Debt                                        $18.15 Trillion

Silver price                                                   $15.81

 

Suppose (more of the same – no hyperinflation):

Zone 1 (Approximately 2017) Ratio:              2.5

US National Debt                                        $21 – $23 Trillion

Silver Price                                                   $55

Zone 2 (Approximately 2020) Ratio:              3.5

US National Debt                                        $28 – $30 Trillion

Silver Price (no hyperinflation)                  $85 – $105

Other possibilities:

  • Global war and hyperinflation: They will create unbelievable levels of debt and tremendously higher silver and gold prices. $150 silver and $5,000 gold will look inexpensive if the US dollar hyper-inflates.
  • Nuclear war, financial and economic collapse, sovereign debt defaults, civil wars and new governments (unlikely, I hope): We better pray our leaders don’t push the world into such a global catastrophe.  If they do who knows how high silver and gold will be priced and which currencies and governments will survive.
  • Everyone plays nice and there is minimal need for wars, false-flags, and other distractions. Extend and pretend miraculously works through the end of the decade.  In that unlikely and benign case, US national debt increases at only 9% per year to about $28 Trillion, the silver to national debt ratio is subdued at 2.0 – 2.5 and silver is priced at only $50 – $75 in this “best of all possible worlds.” (More of the same, no hyperinflation, only small wars, it’s all good, etc.)

Bottom Line:

  • Debt will increase substantially from here, until a massive reset occurs.
  • Gold and silver, in spite of financial cartel resistance, will assert their real value and be priced much higher, depending on the quantity of debt created, loss of confidence in government and central bankers, and the amount of chaos that occurs during the coming storm.
  • Exponentially increasing systems do not last forever. Gold and silver do.
  • Paper currencies eventually revert to their intrinsic value – effectively zero. (Famous last words:  It can’t happen here!”)
  • Don’t worry, be happy, and trust gold and silver more than paper and promises.
  • I discuss the price of gold (no hyper-inflation) through the year 2021 using an empirical model based on the US national debt. You can read about the book here and here and here.

 Read:  Bill Holter:  Being “Polite”

 Gary Christenson

The Deviant Investor

GEChristenson.com

 

11 thoughts on “Silver and Gold: Shelter From the Storm

  1. Gary,
    I have agreed with you for a long time…………BUT….I have been in vesting heavily in gold and silver for a long time. AND now feeling like a fool because my
    silver and gold stocks are down drastically from where I bought them. Is this the time to just stop looking and come back in a year or so? I have considerable
    physical already bought.


    • I’m not an investment adviser, but it seems prudent to remember:
      1. Regression to the mean. Silver and gold and their stocks will come back. They are, after all, real money or companies creating real money.
      2. The current system has an expiration date. I don’t know what that date is, but it is close. Some degree of chaos, perhaps large, will occur and by then it will be too late to hit the exits or to buy gold. Early is better than too late.
      3. Wall Street and the politicos are telling all is good. That should be enough to let us know things are bad and getting worse. Keep your insurance.
      The Deviant Investor


  2. I just recently began reading your work.

    I have been publishing and discussing charts very similar to your chart labeled “Official US National Debt = Log scale” for nearly 10 years. My results are virtually identical to yours. It is encouraging to me to find that I am not alone in the wilderness. Thanks.

    I want to bring to your attention to three points that I have found to be as insightful as your log debt chart above. I suspect you are aware of them, but I want to make sure.
    1) The 9 percent logarithmic slope (or any other meaningful slope) actually reflects the annual deficits incurred each year for more than 40 years. That is, any current annual deficit is equal to the prior year total debt multiplied by 0.09. If it is not, then I assure you the official media reports are incorrect.
    2) The approximate number of years for the total debt to double from its current level equals 70 (actually 100 times Ln(2)) divided by the slope. So at 9 percent annual compound debt growth the doubling time is 70 / 9 or about 8 years, and this time frame only depends on the growth rate, not the total debt. Unfortunately, if the growth rate is shifted up or down to, say, 8 or 10 percent, the time to double shifts only by 1 year, up or down.
    3) The deviation of your red line from the black line is far less important than the deviation of the slope of the red line relative to the slope of the black line. If an “eyeballed” black straight line is rising faster than the red straight line, then the former black slope will be greater than the black slope, and vice versa. So, my charts have shown that US administrations from Nixon thru Carter were about 9 pct, Reagan thru Bush I were around 11 – 12 pct, Clinton were around 6 -7 pct (and not clear straight lines), Bush II was slightly less than 9 pct and Obama about 9 pct. (A piece of trivia here – the spike in black slope abound 2008-2009 was from Bush II sticking it to Obama before GWB left office.)

    But, all in all, unless we wish to split hairs, it is a quire reasonable assumption the the US total debt has and is expected to continue to grown at 9 pct, compounded annually. Unless some really major shift slows it down.


  3. Gary,

    Why do you feel the market will put a ratio of 2.0 from .87? All the inputs are known and the market has decided not to price Silver there. Good report thanks.


    • I think silver is deeply over-sold and undervalued. It will correct upwards, in my opinion. Hence the ratio should rise. I picked 2.0 to 2.5 graphically – nothing scientific or inevitable.
      Thanks for your comments.
      The Deviant Investor


  4. We, the people in the US, are being offered a gift. Take advantage of the soaring dollar to buy gold and silver. The higher the dollar rises the cheaper gold and silver become. Buy now and be ready for the storm that is coming. The US Stock Market tanks along with the dollar and gold and silver go ballistic!
    GD


  5. Amen. The insanity we call our Government and the Government officials who have their head stuck in the sand will one day have to pull out and see what they have done, and it isn’t going to be pretty. Such a pitiful lack of leadership! Gold, Silver, Food, and Water will be the commodities most in demand. The dollar will be used to start fires. GD


  6. How can the powers that be in Washington continue to treat us as if we are gullible children. Much in the way a dog utilizes a fire hydrant, our politicians are treating us much the same, always telling us not to worry “it’s just a little rain.” The all “unicorns and rainbows lie” has been debunked to the point the average citizen has seen through the smoke screen. Our forefathers saw fit to include in our Constitution a reset mechanism, a Second Constitution Congress. I doubt that people care enough to ever see this happen in my lifetime, so we are left to the every man for him/herself. Americans are an extremely resourceful resilient breed, but our elected representatives for the most part suffer from major self interest and ego driven greed. Perhaps the impending financial implosion wont be next week but it is coming. Paper wealth for the most part isn’t backed by any more than a paper promise. True wealth in the form of silver, gold, ammunition, food or other tangibles may not save us but these things will give us a fighting chance to survive. It is my great hope that those people not prepared, will wake up to the reality we face in time act before the clock ticks down to the last minute of the game. Continuing to stack, Dave


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