On the Threshold of the Greatest Bubble in History
by Jeff Clark
by Jeff Clark: After
the Fall: How Far Can Gold and Silver Climb?
It may not
feel like it after a 12% correction in the past 30 days, but Mike
Maloney founder of GoldSilver.com
is convinced that were in a gold bull market that will
be life changing for those who participate. I interviewed him for
our current edition of BIG
GOLD and am sharing some of what we talked about here. You
may be shocked at what you read, because hes devoted a larger
allocation to gold and silver than we have. See why hes convinced
a bubble is ahead for precious metals, how high prices will go,
and why he stores some gold overseas.
For those who dont know you, why is Mike Maloney such a big
believer in gold and silver?
Around 1999, my mother needed help with the estate my father had
left her. My sister and I interviewed a dozen financial planners
and picked the one that had the most glowing recommendations and
gave him control of the assets. He lost about 50% of them in the
next year and a half. What Ive found is most financial planners
get it wrong. Theyre always chasing yesterdays news.
To be fair, there was a market crash, but with 50% of her assets
gone by 2001, I ripped everything away from him, moved it to cash,
and started studying the economy like crazy.
that the people concerned about budget deficits and trade imbalances
at that time were in the precious metals sector, the hard money
advocates. All the rest of the economists and newsletter writers
didnt really care. Concerns about international trade imbalances
and how they were going to come back to bite us one day were coming
from the hard money analysts. They also wrote about monetary history,
something I just fell in love with. The fact that things just repeat
over and over again is amazing.
I have hard
data from 1918 to today, and anecdotal evidence before 1918, that
shows that throughout history a society has a certain amount of
real money gold and silver. Then they either come out with
debased coinage, or paper representations of gold and silver and
expand the currency supply, which eventually cause prices to rise.
People then realize there was something wrong with the currency
and they rush back toward gold and silver to protect their purchasing
and in doing so, they bid up the value of the gold and
silver in the country until it matches the value of the circulating
to me this process has been going on since 407 BC, with the first
great inflation in Athens. I have charts in my book, Guide to Investing
in Gold and Silver, starting in the year 1918, showing the value
of the gold held at the United States Treasury compared to the value
of all of the base money or paper currency, and it was a 1:1 ratio.
So history shows that the value of gold eventually equals the value
of all paper money in circulation?
Yes. Back then, the US dollar was a claim check on real money
gold. Base money was the number of US Treasury gold notes in circulation.
Before World War I, base money equaled the value of the gold held
at the US Treasury. Then we established the Federal Reserve and
did a bunch of deficit spending for WWI, expanding the currency
supply, so now there wasnt enough gold to cover all the dollars
they printed. In 1934 the price of gold was changed to $35 per ounce
and the values of base money and gold at the Treasury were once
again in equilibrium.
Then we expanded
the currency supply to pay for WWII, Korea, and Vietnam, and in
the 70s the price of gold rose until its value at the Treasury
exceeded base money. But, for a short time in 1980, the value of
gold at the Treasury not only exceeded the base money, it surpassed
base money plus outstanding credit card balances. This is important
because credit cards are replacing cash in circulation, so you must
include it if you want to estimate a price target.
So how high do gold and silver go?
When I finished the book, it required a $6,000 gold price to cover
base money plus outstanding revolving credit. Im not saying
that thats going to happen, but if history were to repeat,
that would be the price.
the book was written, Bernanke created a whole bunch of base money
to bail out the banks, and now it takes a $15,000 to $20,000 gold
price. One caveat is that $1.6 trillion of excess currency is sitting
on banks balance sheets. It has yet to enter circulation,
and if it never does, then this price target changes. My point is
that prices are a moving target. Putting a dollar figure on them
is an exercise in stupidity, I think, because the dollar is always
changing. You cant use it as a measuring stick.
My target for
gold is that it should be equivalent to 1/40 of a single-family,
medium-priced home, or two shares of the Dow. So gold will probably
buy you about 12 times more stocks and 3 times more real estate
in the future than it does now. So those are my prices.
will leverage you to that. There is more gold on the exchanges and
with the dealers that investors can buy than there is silver. Their
current prices do not reflect this. Gold is way too cheap compared
to dollars, and silver is too cheap compared to gold.
Sounds like its not too late to buy gold and silver.
No. What investors need to be aware of is that we are on the last
legs of our currency system. History shows that the world sees a
brand-new monetary system every 30-40 years and ours is 40
years old. Right now all currencies on the planet are backed by
debt. All of the previous transitions were baby steps from something
(gold) to nothing (debt). In order to give confidence back to the
currencies, well have to go from nothing (debt) to something
(most likely gold again) in one big, huge, gigantic leap. This will
cause an economic convulsion the likes of which the world has never
The end of
this precious metals bull market will be marked by panic buying.
Gold and silver will be going into an astronomical bubble one day,
probably the biggest bubble in financial history. That is why I
think gold and silver are still fundamentally undervalued.
Investors reading this might be a little skeptical that a bullion
dealer is telling them to buy gold and silver. Do you mind sharing
what percentage of your assets is held in gold and silver?
My personal portfolio is 100% in gold and silver. I have no other
investments. I am completely committed to this because I absolutely
believe it. I spent 2-1/2 years writing what is now a bestselling
book on gold, and I opened a precious metals dealership. There isnt
anything I do, no action I take, that isnt somehow connected
to gold and silver.
What separates GoldSilver.com from other bullion dealers?
Everybody at GoldSilver.com invests in gold and silver. They have
all been invested in precious metals since I started the company
in 2005. Everyone is absolutely committed and very knowledgeable.
So we are all on the same side of the boat as Casey Research. If
you become a gold and silver client, youll know were
invested just like you are. Were walking the walk and talking
We also have
a team of researchers who are constantly analyzing where we are
in this bull market. Its in our best interest to try to find
the top of this bull market and sell when the time is right. I believe
we can multiply your winnings by letting you know what were
doing when it comes time to sell. The way Ive set up my company
is that if you dont win, I dont win.
you should know is that I am not a gold or silver bug. I couldnt
care less about these metals. They are just in their cycle right
now and will be the best performing asset for the coming years
period just based on history.
There are these
brief moments in history where the safe-haven asset also becomes
the asset class with the single greatest potential gains in absolute
purchasing power. Were in one of these cycles right now; as
the currency supply gets ramped up and people realize there is something
wrong with it, theyll rush back toward gold and silver and
bid the price up until it matches the value of the currency supply.
Youre increasing the number of storage facilities outside
the US; why should a US citizen consider storing bullion outside
Some investors are concerned about confiscation, which
is technically incorrect. The US government never confiscated gold;
they nationalized it. In 1933, they bought it from US
citizens at full face so that the Treasury could hold it as an asset
for the entire nation. Thats the very definition of nationalization.
Are you saying you dont think gold could be confiscated?
Its possible, but I dont believe it would happen in
the United States. More than half of our currency resides outside
the border. Were the only country in that situation. If Obama
passed an executive order today once again nationalizing gold, I
believe that banks and brokerage houses around the world would suspect
something was wrong with the dollar, and they would immediately
dump their dollars and buy gold and silver. That would cause the
dollar to fall to zero and send gold and silver to infinity in a
matter of weeks. I would hope there is someone in the government
smart enough to know this. If so, then it makes nationalization
But I do believe that it is good to have some geographical diversity.
I think were going to see governments trying to limit our
financial freedom even more than weve seen since 9/11. Theyll
do this by instituting such draconian capital controls that todays
IRS will seem magnanimous by comparison. I want to be able to travel
freely and have access to my funds no matter what happens. Therefore,
I keep some of my gold in offshore storage accounts in several countries.
But why go to the hassle and bother with the reporting requirements?
Because if youve got ownership outside the country, you may
be able to retain it, even in a nationalization. The point is, we
dont know the future. All we can do is look at whats
happening, try to figure out what governments are going to do, and
then protect ourselves with a little bit of diversity. And of all
the assets you could own offshore, I believe none are safer than
physical gold or silver.
Do you think foreign storage puts a target on my back with government
Well, they want to make sure youre declaring any capital gain.
And I do think that precious metals investors will see some sort
of windfall profit tax when the government tries to punish those
nasty gold speculators that caused the dollar to crash. They will
always point the finger anywhere but where it belongs which
is squarely at the government and the Federal Reserve. People are
just trying to protect themselves from government stupidity and
the Fed by buying gold and silver.
think the reason they require the reporting is to make it difficult
for people to cheat on their taxes. I dont think its
going to make you any more of a target than anybody else if you
report everything. If you play within the rules, youre not
a target. I myself walk the straight and narrow. I make sure I comply
with everything the IRS and the Treasury require.
What about the small investor? Do you have any advice for the person
who has limited funds?
Yes. It only takes $40 to become a silver investor. Regardless of
what your income level is, youre going to come out much better
in the end. And once you take the leap and become an investor, your
mindset changes and you find yourself starting to plan. A lot of
people are not really planning on the future that much but
once you buy an ounce of silver and become educated, you give yourself
a tremendous advantage over the rest of the population.
So just buy
small quantities of silver. It has such leverage to it. And silver
will probably go into some sort of super-spike that you will want
to catch, which means you probably need some sort of guidance. Thats
where subscribing to newsletters such as yours is very, very important
for anybody whos going to get into this.
Thanks for your time, Mike. And we appreciate the discount youre
offering our readers.
Youre very welcome.
Want to take
advantage of the special discount on storing bullion outside the
US? Goldsilver.com is giving us six months free storage at
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with permission from the Daily
Clark is editor of BIG
GOLD in Casey's Daily Dispatch.
2011 Daily Reckoning