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What are the key reasons why you predict gold will continue to rise?

Robert Wiedemer
May 12, 2010
Video Transcript

I think that the things that are obviously most likely to make gold rise are inflation. That's number one on the list. Of course, that's still a ways off. We've increased our money supply almost 300%. People don't realize that. That's a massive increase. If you look at the charts showing the increase in the money supply, during the 80's and 90's it was relatively smooth, jumped a little bit in the dot COM bubble when we had boost the economy a bit. Otherwise, it was fine until 2008 and it went straight up. We went from $800 billion to almost $2.3 trillion, almost a 300% increase. That's the kind of thing that creates inflation. The feds talking to you about printing more money, to buy more government bonds, potentially, if we have further economic problems, again more inflation. So I think that's one of those key issues we don't want to think about.

The second key issue--government debt. Government debt is a bubble. Let's think about it. We all sort of know that the government debt is out-of-hand, right? But do we realize how out-of-hand it is and how quickly it could change? Government debt right now, looking at it on our debt-to-income ratio not our debt-to-GDP as many people like to look at, but debt-to-income which we all understand, because that's how we would look on a loan if we were a business or an individual. Our debt to income is 7 to 1. We have income of $2 trillion. We are about to have a deficit of $14 trillion. That's a toxic acid; that's a toxic loan. It only works because people are confident that they can keep rolling it over and rolling it over, but how long can you do that if interest rates go up? Kind of like adjustable rate mortgage, right? Who’s the biggest holder for adjustable rate debt in the world right now? The U.S. government. Did you know that 37% of our debt is less than 1-year maturity? We've really got to roll it over and when we roll it over and interest rates rise, we're going to be in real trouble. At 10% interest rates, I mean that isn't very high, right? We had 10% interest in the early 90's. We had much higher than that. We'd be paying almost as much in interest payments as we'd be bringing in taxes. It's a real problem. Now is this going to happen tomorrow? No, but these things can happen fairly quickly and so that's the kind of events that starts to scare people. Scare people a lot that can cause them to buy more gold. Not just here, but around the world. Remember, the rest of the world is going to worry if we're having trouble. I mean it's still true to a large degree, when the U.S. catches a cold; the rest of the world catches pneumonia. They're going to get scared too and they're going to find that they're moving to gold.

The countries in the Middle East, China, India, keep in mind a country like Turkey whose economy has grown tremendously in the 90's and 2000's buy as much gold as the U.S. So there's a lot of world demand pushing gold up right now. The second thing is that other financial instruments are not performing as well. What do I mean by that? The stock market, obviously. The stock market between 1980 and 2000 was up 1000%. It would be pretty hard for gold to compete with that. Now the stock market adjusted for inflation is down over 20%. Well gold is going to look a whole let better isn't it, because it's up 300%. So when people start moving into gold, it's a bit of a self-fulfilling prophecy, gold keeps going up even more. So that's the second reason.

The third reason is that when we have financial instability gold is a traditional counter investment for that. When people are worried about inflation, or people are worried about the stability of our bank finances, of our government's finances, people tend to move into gold naturally. Again, all of this will create a bit of a self-fulfilling prophecy and gold will start to go up as we've already seen. I think when we have a real problem, I mean, if we did have something like a treasury auction that had problems or we start to see significant inflation 8, 9, 10%. I think that's the kind of thing that kicks off the kind of "Golden Years" so to speak for gold. This is where we're going to see gold really start to take off at that point. I see a nice increase until then for the next couple of years for however long it takes. Once some of those more shocking events occur, then I can see gold to really take off.

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