Gold & Silver as money, by Jim Rickards
edmundfitzgerald
Posts: 4,306 ✭✭
In a presentation at Johns Hopkins University, he takes a dynamic approach to monetary systems, explaining economies as physical entities subject to many quantified factors. With regard to PMs regaining appreciation as money, Rickards points to critical levels among populations of varying size. For example, a population of 1000 will entirely reject a currency once 100 individuals reject it. That population then triggers an avalanche of rejection, starting with the next largest grouping and eventually affecting entire states and nations.
While Rickards does not predict when repatriation to precious metals will occur in the United States, he does predict that it will happen. As the global reserve currency, Rickards suggests that money supply values gold between $4,000 and $11,000 per ounce. He does, however, advocate a partial backing of currencies with gold to allow greater flexibility for central banks and structure for all citizens. With central banks were required to back currencies with 40% of their value in gold, Rickards comes up with a price of $3,000 to $7,000 per ounce.
While we may never return to days of hard currencies, the historical significance and potential power of gold and silver are paramount. They represent scarcity and can be used by central banks to encourage fiscal conservatism and economic stability. With current trends in tact and a stable monetary base, $3,000/oz gold is a conservative target. Expanding the monetary base would raise the target proportionally. Rickards does not discuss silver prices in the presentation, however I am partial to historically common ratios of 35-1 and 15-1. In 1480 an ounce of silver was worth an ounce of gold and in recent decades the ratio has flirted with 100-1, displaying extremes that coincide with changes in global monetary perception. With gold at $3,000/oz and a 15-1 gold-to-silver ratio, we get a fairly aggressive target for silver of $200/oz.
Investors can benefit from a continuing repatriation to "real money" by owning it in the form of coins, bars, shares of funds that hold bullion or shares of mining companies.
While Rickards does not predict when repatriation to precious metals will occur in the United States, he does predict that it will happen. As the global reserve currency, Rickards suggests that money supply values gold between $4,000 and $11,000 per ounce. He does, however, advocate a partial backing of currencies with gold to allow greater flexibility for central banks and structure for all citizens. With central banks were required to back currencies with 40% of their value in gold, Rickards comes up with a price of $3,000 to $7,000 per ounce.
While we may never return to days of hard currencies, the historical significance and potential power of gold and silver are paramount. They represent scarcity and can be used by central banks to encourage fiscal conservatism and economic stability. With current trends in tact and a stable monetary base, $3,000/oz gold is a conservative target. Expanding the monetary base would raise the target proportionally. Rickards does not discuss silver prices in the presentation, however I am partial to historically common ratios of 35-1 and 15-1. In 1480 an ounce of silver was worth an ounce of gold and in recent decades the ratio has flirted with 100-1, displaying extremes that coincide with changes in global monetary perception. With gold at $3,000/oz and a 15-1 gold-to-silver ratio, we get a fairly aggressive target for silver of $200/oz.
Investors can benefit from a continuing repatriation to "real money" by owning it in the form of coins, bars, shares of funds that hold bullion or shares of mining companies.
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