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Rickards Doubles Down On USD $10,000/ounce Gold Forecast - Peter Diekmeyer (28/08/2019)

Rickards Doubles Down On USD $10,000/ounce Gold Forecast - Peter Diekmeyer (28/08/2019)
By Peter Diekmeyer 5 months ago 173352 Views 3 comments

August 28, 2019

James Rickards, who has been warning about fault lines in America’s financial system for more than a decade, is one of the country’s most forward economic thinkers.

The prolific writer mixes with big bank board members, CIA spooks, and grubby miners in the Val D’Or Quebec pits.

After four major works—including Currency Wars, The Death of Money, The Road to Ruin, and The New Case for Gold—you’d think he’d run the gamut.

In his latest book, Aftermath, Rickards updates readers on his thinking and doubles down on his forecast that gold prices, up 25% since we published his initial prognosis in 2016, will hit USD $10,000 per ounce.

An innovative investment strategy: 10% invested in physical gold

Rickards believes that the U.S. economy is already in a depression as defined by John Maynard Keyes, which is a sustained period of sub-par economic growth.

This fact is masked by the reality that U.S. statistical agencies have redefined the way they calculate the unemployment rate, which would in fact be above 10% using previous methodologies.

Rickards’ key message—which makes him a perennial favorite at gold conferences (including, full disclosure: numerous Sprott events)—is that investors should hold 10% of their investable assets in gold, to act as a hedge against coming catastrophe.

This, he says, will come from a variety of factors ranging from a 60% stock market crash, to multiple decades of economic stagnation, to the collapse of major U.S. banks.

Rickards says financial institutions are far more vulnerable than they appear, because much of their derivatives trading is now done through clearinghouses whose debts they are collectively liable for.

Longer-term, America will be particularly hard-hit if oil begins to be priced in IMF-issued special drawing rights, as Russia, China, Iran, and Turkey combine to force accelerated de-dollarization.

The ultimate hedge

In Aftermath, Rickards assigns greater probability to deflationary pressures than he did in previous works, and thus recommends a 30% cash allocation to enable investors to profit from any downturns, with the balance of the portfolio going into equities.

Rickards figures that by using this “barbell” investment strategy, investors will be protected against wild portfolio fluctuations during a time when, for most investors, return of investment is a bigger priority than return on investment.

For example, if gold prices were to fall 20%, an investor who held 10% of his portfolio in gold would register a related setback from the category worth only 2% of his overall holdings.

On the other hand, due to gold’s counter-cyclical properties, a fall in prices would suggest that the investor’s other asset classes are doing much better.

Forecasting long-term cycles

Rickards, who also edits the Strategic Intelligence newsletter, thinks in multi-year and often multi-decade cycles. This, however, poses certain challenges.

One of these is dealing with friends, clients, and readers who want to know what day the economic reset—which smart money managers think is coming—will happen.

(Rickards says he has never met a major hedge fund manager who did not personally own gold.)

The lawyer and former accountant won’t bite.

Rickards likens accumulating system debts, central bank stock market manipulations, and financial institution off-book derivative trading to piling snow on a mountain. Just one snowflake will set the avalanche off—you just never know which one that will be.

Rickards’ favorite talking point is that during the 1998 Long-Term Capital Management crisis, the big banks bailed out the hedge fund. During the 2008 crisis, central banks bailed out the financial institutions.

But during the next crisis, the central banks themselves will need to be bailed out, says Rickards, possibly by the IMF and through hyper-printing of a global currency.

All of this, he says, would be highly inflationary and thus boost the value of hard assets relative to paper claims.

About Sprott Money

Specializing in the sale of bullion, bullion storage and precious metals registered investments, there’s a reason Sprott Money is called “The Most Trusted Name in Precious Metals”.

Since 2008, our customers have trusted us to provide guidance, education, and superior customer service as we help build their holdings in precious metals—no matter the size of the portfolio. Chairman, Eric Sprott, and President, Larisa Sprott, are proud to head up one of the most well-known and reputable precious metal firms in North America. Learn more about Sprott Money.

Peter Diekmeyer is a business writer/editor with Sprott Money News, the National Post and Canadian Defence Review. He has studied in MBA, CA and Law programs and filed reports from more than two dozen countries.

The views and opinions expressed in this material are those of the author as of the publication date, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.You may copy, link to or quote from the above for your use only, provided that proper attribution to the source and author is given and you do not modify the content. Click Here to read our Article Syndication Policy.

fazsha 5 months ago at 10:19 AM
"For example, if gold prices were to fall 20%, an investor who held 10% of his portfolio in gold would register a related setback from the category worth only 2% of his overall holdings."

Yes, but that also means if gold went up 50% but he only held 10% of his portfolio in it he would only gain 5%, and if gold went up that much it would probably indicate inflation would be at least 5%. Which is why I don't hold merely 10% in gold; it's not going to save you. You have to do better than that.
Peter Diekmeyer 5 months ago at 2:49 PM
Excellent point. However Rickards projects a $10,000 gold price,

This he says would generate large enough gains to hedge against a 60% drop in the stock market, which he also thinks will occur.

I am not saying he is correct....we never give investment advice ... that said, some analysts... like Marc Faber...say that your precious metals holdings should be much larger.

I will try to get an interview with Faber during the coming months, and will try to challenge his thinking. Stay tuned.
Robert Happek 4 months ago at 7:47 PM
I am sure that personally, Rickards maintains a larger allocation to the yellow metal than 10%. He can not really recommend an allocation of let us say 30% or 40% to gold. That would put him at odds with the financial establishment as it would threaten the financial system. A recommendation of 10% is politically harmless and for reason acceptable. RIckards is politically well connected and he does not want to ruin his reputation with the government. A recommendation of 10% is indeed a recommendation which is not threatening the fiat system.

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