Tag Archives: monetary system

Gold Price: USD 65,000/oz in 5 years? Speech by Torgny Persson

Gold Price: USD 65,000/oz in 5 years? Is it realistic that the price of gold could reach this level in the foreseeable future?

This speech by BullionStar's CEO, Mr. Torgny Persson, was recorded during FreedomFest 2017. FreedomFest is the world's largest gathering for freedom oriented people. BullionStar participated by exhibiting and educating about the monetary system.

The following topics were covered in Mr. Persson's speech:

1) Money System of Today

How does our monetary system work - or doesn't work? Do fiat currencies like the US Dollar have any real intrinsic value?

Mr. Persson describes the purposes and characteristics of money and explains why fiat currencies are not true money per definition. Mr. Persson educates about how money is created and how most money of today only exists in electronic form.

2) Gold Manipulation - Gold Price

Is the price of gold dictated and artificially suppressed? What happens if the current system for gold price discovery fails? Is a gold price of USD 65,000/oz in 5 years realistic?

Mr. Persson discusses how the price of gold is set/discovered on the gold marketplace and how it is vulnerable to manipulation.

3) Singapore 

Why is Singapore the best country in the world for asset preservation and wealth protection?

Mr. Persson presents the advantages of Singapore as a safe jurisdiction for buying and storing bullion. No taxes on bullion in Singapore, no reporting requirements, strong property ownership rights and safety are some of the properties that makes Singapore uniquely positioned as the best country in the world for asset and wealth protection and preservation.

4) Offshore Bullion Protection with BullionStar 

Mr. Persson introduces BullionStar's products and services such as bullion vault storage in Singapore, Bullionstar Gold Bars and Silver Bars that can be traded without any spread in between the buy and sell price, cash & bullion on the same account and more.

The slides from Mr. Persson's speech are accessible below.

Gold Price: USD 65,000/oz in 5 years?

16 June 2021 is exactly five years from today. What will the gold price be on 16 June 2021?

Currencies are Worthless

As the world’s fiat paper currencies have lost 99% or more of their purchasing power over the last 100 years, its critical to understand that fiat paper currencies are not a suitable unit of account for accurately measuring prices.

In fact, gold is a far superior measuring stick of value than paper currencies.

A paper currency doesn’t measure anything. It merely has an arbitrary value placed upon it by the population using it. It’s not backed by anything and it can fail at any time. From historical experience, we know that the unbacked fiat paper currencies used today will ultimately destruct and become worthless. All unbacked fiat currencies throughout human history have failed.

A more accurate measurement would be to measure fiat currencies in gold. If we look at the US Dollar measured in gold, we can see that the US Dollar has utterly failed in retaining its value, as its value has plunged about 98% over a mere 50 years. It cannot therefore be seen as a store of value.

Chart of US Dollar measured in Gold. USD price instead of Gold Price.Source: Gold Price Charts, BullionStar

Extrapolating into a likely future, a future in which you will need a stack of USD 100 bills to buy a carton of milk and a couple of eggs, underlines that the US Dollar gold price is meaningless as an indicator of value. When discussing the price of gold, the key is to recognise that gold retains its purchasing power over time. If a 1 oz gold coin can buy an exclusive men’s suit today at USD 1,300 and the same 1 oz gold coin buys an exclusive men’s suit at USD 2,600 tomorrow, this only means that gold is still reflecting USD 1,300 in today's purchasing power and hasn’t gained in value. It’s the US Dollar that has depreciated vis-à-vis gold. Similarly, if the gold price goes to USD 650 and it can still buy the same suit, then it’s merely the US Dollar that as appreciated vis-à-vis gold.

With a gold price of USD 65000, what will the USD be for Milk, Egg and Bread

As a society, we should by now have transcended the idea of measuring value in fiat currencies. Currencies are not a reliable measuring stick. Just imagine if the centimeter, meter, yard or foot were to fluctuate in length.

100 cm 100 years ago has become 2 cm today. Think about it. This is what has happened with our currencies.

The Gold Price                                  

The gold price is an interesting term because the gold price doesn’t reflect what’s happening on the physical gold market whatsoever.

In today’s marketplace, a lot of things are regarded as “gold”. On the London Gold Market alone, there’s 600 times more gold traded each day than there is gold mined globally on that same day.

All sorts of paper gold passes for “gold” on the financial markets. The vast majority, certainly more than 95%, and likely more than 99% of this paper gold is not backed by any physical gold.

“Gold” is created out of thin air as paper obligations. The demand for and supply of this paper gold has little to do with the physical gold market.

During the last couple of year, demand for real physical gold has been insatiable , however the price of gold has not reflected this huge demand. Physical gold has been flowing from the Western vaults to Asia. The Chinese in particular have been vacuuming the London vaults for gold. However, this substantial physical demand hasn't been reflected in higher gold prices because whereas Easterners have been buying physical gold, Westerners have been selling paper gold.

Given that the price of “gold” is set on the OTC paper market in London and on the COMEX futures market in New York, the US Dollar denominated gold price continued to fall between 2012 and 2015 despite the massive physical demand, and instead, it created a physical shortage of gold.

Whether physical demand is up or down 5 tons in China or India matters little when there’s 5,500 tons of paper gold traded each day in London  as visualized in this infographic. London, and to a lesser extent COMEX in the US, are the price discovery markets for gold. However, paper gold on these markets is almost exclusively cash settled with less than 1% of the contracts/futures settled with delivery of physical gold.

The gold price is therefore not dependent on the market fundamentals of physical gold but this may very well change in the future.

With China picking up all physical gold available every time the price slides, widespread shortages are a likely outcome if the gold price ever were to decrease significantly again. Given that the historic vaulting capital of the world, London, has already been running out of stockpiled gold, there just wouldn't be enough physical gold to satisfy demand if the price were to ever plunge significantly again.

It's actually been a healthy development for the physical market’s demand/supply balance  that the gold price has increased 22% in USD Year-to-Date 2016. However, we have to understand that the largest potential for a revaluation of the gold price paradoxically may be preceded by a decrease in gold prices.

When trend seeking Western investors sell their paper gold and the price slides, Easterners take the opportunity to buy physical gold at bargain prices, thereby stressing the physical market with shortages as a result. Such shortages may very well be what ultimately breaks the neck of the paper markets. Because when there is no longer any physical gold available at the price dictated by the paper markets, there will be a disconnect between the price of paper gold and the price of physical gold. Paper gold will go towards zero whereas the price of physical gold will skyrocket.

Such a revaluation of physical gold will bring the fiat paper currencies to their knees as their worthlessness as a store of value will become clear to all.

USD 65,000/oz

What will the price of gold be in 5 years’ time?

Gold is savings - Gold is wealth, and as such, the price denominated in something as inferior as the US Dollar isn't very important.

For the sake of reflection, we can play with the idea of what the price of gold would have to be if the US Dollar were to go on a fully-backed gold standard.

The US gold reserve officially stands at 8,133.5 tons although it has never been properly independently audited. At USD 1,300/oz, this would be equivalent to 340 billion dollars. The total US money supply is about 17,000 billion dollars. For each "gold backed" dollar today, there are therefore 49 unbacked dollars. The gold price would thus have to increase 50-fold to USD 65,000 if the US Dollar were to be fully gold-backed by 16 June 2021.