Will the real safe haven please stand up

No institution will be able to bail out the US, UK, Japan and EUR all at the same time, and once this realisation dawns on investors and the public, the effects will be spectacular. 


In a conservative scenario, if the market cap of government debt falls from $50 trillion to $40 trillion, in other words, sovereign yields rise by some 5 percentage points across the globe, and in a safe-haven bid 100% of that liquidity is absorbed by the gold market, we could easily see the market cap of the gold market rise 25 times higher than it is today.

If 30% of this liquidity finds its way into physical gold, we’re talking a gold price 7.5 times higher than today’s levels.

That will mean the gold market still only accounts for some 10% of global financial assets.  A conservative level, some would argue.

This is assuming a one-to-one algorithmic-type buy and sell order of financial assets in exchange for the real safe-haven, gold, takes place in the market.  But we know we are here dealing with people and hence, psychological factors that may make these metrics and basic calculations completely worthless.  In all likelihood, it will underestimate the panic buying of gold and see the price go much higher than we estimate here.

Is this analysis a little simplistic?  Of course yes.  There will be a big move into equities and maybe even private debt, as well as other commodities.  But the point should be clear. 

Governments have shifted away from gold as money for settlement of international trade, etc. in order to promote the use of its own paper monies.  When the market wakes up and sees that this paper money scam puts Bernie Madoff to shame, there will be a gold buying frenzy.

Get your seat while the music is still playing.

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