Submitted by Adam Taggart of Peak Prosperity,
This week, Chris talks with Jeff Clark, Senior Precious Metals Analyst at Casey Research, where he serves as editor of their Big Gold newsletter.
They tackle head-on many of the questions weary precious metals investors are wondering after enduing the volatile yet range-bound price action of gold and silver over the past year:
- Have the fundamentals for owning gold & silver changed over the past year? No
- What are they? currency devaluation/crisis, supply-chain risk, ore grade depletion
- How should retail investors own gold? Mostly physical metal, some quality mining majors (avoid the indices), and ETFs only for trading
- Is gold in a bubble? No
- Could gold get re-monetized? Quite possibly
- Where is gold flowing? From the West to the East. At some point, capital controls will be put in place
What the politicians are doing is the exact opposite of what they need to be doing. We continue adding to our debt, we continue raising the debt ceiling, we continue deficit spending, we continue borrowing money, and, of course, we continue printing money. We are doing the exact opposite of all the things that would lead us away from inflation. So yes, I think that is an important point.
I will add that inflation has occurred very quickly, very rapidly, very suddenly many times in the past, just in recent history. If you look back at the high inflationary times, just in the past 100 years here in the U.S., many of those that hit 12%, 14%, 15% -- two years prior to then, the CPI was completely benign. It was 1%, 2% – I think at one point it was 4% – and then all of a sudden within 24 months, it was 12%, 14%. So it can happen very suddenly, and my fear is that is what is going to happen this time. People are in a lull; no one is expecting it: the CPI is low; nothing is really happening with all this money printing; there has been no fallout. But I think that is the critical point. You cannot do these kinds of things we are doing forever and not experience any consequences. Sooner or later there are going to be consequences to what we are doing, and my fear is that it is going to be nasty, catch a lot of people off guard, and really hurt our society. The bottom line for me is, that is why I am buying gold and silver, still, to this day.
For these reasons and others, Jeff strongly believes everyone should have exposure to gold and silver as a defense for preserving the purchasing power of their weath. The key question is: how much exposure?
You want to focus on how many ounces you own, not necessarily looking at whether the price is $5 higher today than it was yesterday. How many ounces do you own? That is really the question you want to ask yourself, so you can focus on how much you are really going to need, and the amount really comes down to this.
For me, I am probably going to use some of this gold if we get high inflation. How are you going to protect your standard of living if we get some kind of runaway inflation? And let’s say it's not runaway hyperinflation; let’s just say it's high inflation, 10%, 15%. Remember it was 14% in 1980, so the odds of us getting high inflation are realistic. So if I am going to use that gold to cover my standard of living, you are going to need about two thirds of an ounce of gold for every thousand dollars of monthly expenses. If you want to protect your standard of living and not have your house be ravaged by inflation, so to speak, so that is a good guideline to follow.
So if inflation lasts a couple years, well, you are going to need 15 ounces of gold for every thousand dollars of monthly expenses. That is a good guideline to think about. And if your expenses are more per month, you are going to need more gold than that. If inflation lasts longer than two years, you are going to need more than that, but you can actually use the sales of gold and silver to protect your standard of living. You sell some gold and silver, you are going to get U.S. dollars or Canadian dollars with it and you can use the increase in the gold and silver price to offset the increase in the goods and services you are buying.
So I think that is the way to view it, to look at how you are going to use it. And so the focus again comes back to how many ounces do you own? So if you do not have any, you need to obviously start buying.
Here are two tables -- one for gold and the other for silver -- Jeff offers in his newsletter to help investors calculate the requisite ounces needed to protect against rising inflation over time:
The point here is that you're probably going to need more ounces than you think. Look at your bank statement and assess how much you spend each month – and do it honestly.
The other part of the equation is how long we'll need to use gold and silver to cover those expenses. The potential duration of high inflation will dictate how much physical bullion we need stashed away. This is also probably longer than you think; in Weimar Germany, high inflation lasted two years – and then hyperinflation hit and lasted another two. Four years of high inflation. That's not kindling – that's a wildfire roaring through your back yard.
So here's how much gold you'll need, depending on your monthly expenses and how long high inflation lasts.
Ounces of Gold Needed to Meet Expenses During High Inflation Monthly expenses in US dollars Monthly expenses in gold, oz* Inflation Duration 6 months 1 year 18 months 2 years 3 years 4 years 5 years $500 0.31 1.9 3.7 5.6 7.5 11.2 15.0 18.7 $1,000 0.63 3.8 7.5 11.3 15.0 22.5 30.0 37.5 $2,000 1.25 7.5 15.0 22.5 30.0 45.0 60.0 75.0 $3,000 1.88 11.3 22.5 33.8 45.0 67.5 90.0 112.5 $4,000 2.50 15.0 30.0 45.0 60.0 90.0 120.0 150.0 $5,000 3.13 18.8 37.5 56.3 75.0 112.5 150.0 187.5 $10,000 6.25 37.5 75.0 112.5 150.0 225.0 300.0 375.0 $20,000 12.50 75.0 150.0 225.0 300.0 450.0 600.0 750.0 *Based on $1,600 gold price
If my monthly expenses are about $3,000/month, I need 45 ounces to cover two years of high inflation, and 90 if it lasts four years. Those already well off should use the bottom rows of the table. How much will you need?
Of course many of us own silver, too. Here's how many ounces we'd need, if we saved in silver.
Ounces of Silver Needed to Meet Expenses During High Inflation Monthly expenses in US dollars Monthly expenses in silver, oz* Inflation Duration 6 months 1 year 18 months 2 years 3 years 4 years 5 years $500 17.9 107.1 214.2 321.3 428.4 642.6 856.8 1,071.0 $1,000 35.7 214.3 428.5 642.8 857.0 1,285.6 1,714.1 2,142.6 $2,000 71.4 428.5 857.0 1,285.6 1,714.1 2,571.1 3,428.2 4,285.2 $3,000 107.1 642.8 1,285.7 1,928.5 2,571.4 3,857.0 5,142.7 6,428.4 $4,000 142.9 857.1 1,714.2 2,571.3 3,428.4 5,142.6 6,856.8 8,571.0 $5,000 178.6 1,071.4 2,142.8 3,214.3 4,285.7 6,428.5 8,571.4 10,714.2 $10,000 357.1 2,142.6 4,285.0 6,427.8 8,570.4 1,2855.6 17,140.8 21,426.0 $20,000 714.3 4,285.7 8,571.4 12,857.0 17,142.7 25,714.1 34,285.4 42,856.8 *Based on $28 silver price
A $3,000 monthly budget needs 1,285 ounces to get through one year, or 3,857 ounces for three years.
I know these amounts probably sound like a lot. But here's the thing: if you don't save now in gold and silver, you're going to spend a whole lot more later. What I've outlined here is exactly what gold and silver are for: to protect your purchasing power, your standard of living.
Jeff discusses the Hard Assets Alliance as a solution worth considering when purchasing bullion. For more information on the HAA can be found here.
Click the play button below to listen to Chris' interview with Jeff Clark (46m:01s):