The Bottom Line:
- The economy is currently in a new Great Depression, characterized by depressed growth and a rapidly increasing debt-to-GDP ratio.
- Inflation is driven by the velocity of money, which has been declining since 1998, indicating deflationary pressures.
- Rickards predicts that gold prices could reach $115,000 per ounce by 2025 based on historical bull market trends.
- Gold serves as a potential safe haven asset during economic instability and could be a significant wealth preservation tool.
- Investors should consider acquiring gold sooner rather than later to maximize potential gains as the economic crisis unfolds.
The New Great Depression: Depressed Growth and Rising Debt-to-GDP Ratio
Depressed Growth: The Hallmark of a New Great Depression
Traditionally, people often associate a depression with a continuous decline in gross domestic product (GDP), similar to what happened during the 1930s Great Depression. However, Jim Rickards suggests that the key characteristic of a depression is not necessarily consistent negative growth, but rather depressed growth, meaning growth that is significantly below its potential. To illustrate, imagine a hypothetical scenario where the potential growth rate of an economy is estimated to be 3.5% annually. In a healthy economic environment, you would expect the actual GDP growth rate to be close to this figure. However, if the actual growth rate falls far short of the potential rate, say around 1.75%, it indicates depressed growth.
The Debt-to-GDP Ratio: A Ticking Time Bomb
When you combine subdued growth with a rapidly increasing debt-to-GDP ratio, the economic outlook becomes even bleaker. If debt is growing at a rate of 5 to 8% annually while GDP is only growing at a sluggish 1 to 2%, it suggests that the country is accumulating debt at a much faster pace than its ability to generate wealth. This imbalance can have serious consequences, potentially leading to insolvency and economic instability. It’s important to note that making money during a depression is possible, as evidenced by Joseph P. Kennedy, who became one of the richest men in America by shorting stocks ahead of the Great Depression. The key is to see the depression coming and adjust your investment strategy accordingly.
Inflation, Deflation, and the Velocity of Money
Another critical debate today is whether we are headed towards inflation or deflation. Jim Rickards emphasizes the importance of understanding and using the same definitions as major financial institutions like the Federal Reserve, the European Central Bank, and the United States Treasury to accurately predict market behaviors. He argues that inflation is not driven by the money supply alone, but by the velocity of money. Velocity refers to the turnover of money, and it’s a crucial factor in determining inflation. When money has high velocity, it means that people are spending and investing, which typically stimulates economic activity. Conversely, if money sits idle, like when people stay home and don’t spend, velocity is zero. The problem arises when people start hoarding money rather than spending it, which can lead to deflation, a situation where prices drop and can be harmful to the economy.
Declining Money Velocity Since 1998 Indicates Deflationary Pressures
The Declining Velocity of Money Since 1998
Since 1998, the velocity of money has been declining, nearing zero, which Rickards identifies as a significant deflationary pressure. The velocity of money refers to the rate at which money changes hands in an economy. When people are actively spending and investing, the velocity of money is high, indicating a healthy economy. However, when people start hoarding money instead of spending it, the velocity of money decreases, leading to deflationary pressures.
The Potential of Gold as a Safe Haven Asset
In the face of these dire warnings, Jim Rickards presents a compelling argument for one asset that stands out as a potential safe haven: gold. Rickards forecasts that the price of gold could hit a staggering $115,000 per ounce by 2025, making it a potential millionaire-maker. He bases his projection on three distinct analyses, each shedding light on the potential trajectory of gold prices.
Historical Trends and the Third Great Bull Market
Rickards identifies three major bull markets in gold. The first occurred between 1971 and 1980, during which gold prices surged by over 2,000%. The second bull market spanned from 1999 to 2011, with gold prices rising nearly 700%. Currently, we are in what Rickards describes as the third great bull market, which began in December 2015. By taking the average gains from the first two bull markets, Rickards arrives at a potential price target of $15,000 per ounce by 2025. However, he emphasizes that investors shouldn’t wait until 2025 to invest in gold if they agree with his analysis.
Gold Prices Predicted to Reach $115,000 per Ounce by 2025
Gold’s Historical Bull Markets and Future Projections
Jim Rickards bases his bold prediction of gold reaching $115,000 per ounce by 2025 on three distinct analyses. The first line of reasoning comes from examining historical trends in gold prices. Rickards identifies three major bull markets in gold: the first occurring between 1971 and 1980, with a surge of over 2,000%; the second spanning from 1999 to 2011, with a nearly 700% increase; and the current third great bull market, which began in December 2015. By taking the average gains from the first two bull markets, Rickards arrives at a potential price target of $15,000 per ounce by 2025.
Investing in Gold: Timing and Strategy
Rickards emphasizes that investors shouldn’t wait until 2025 to invest in gold if they agree with his analysis. The key is to recognize the potential of gold as a safe haven asset and adjust investment strategies accordingly. By examining the average duration of the previous two bull markets, which were 9 and 12 years respectively, Rickards suggests that the current bull market could last around 10.5 years from its starting point in December 2015. This projection, combined with the potential average gains, leads him to the staggering $115,000 per ounce price target by 2025.
Gold as a Millionaire-Maker: Seizing the Opportunity
With the potential for gold prices to reach such extraordinary heights, Rickards presents a compelling case for the precious metal as a millionaire-maker. However, he stresses the importance of acting on this opportunity sooner rather than later. Waiting until the price of gold has already skyrocketed may limit the potential gains for investors. By understanding the historical trends, recognizing the current economic climate, and seizing the opportunity early, investors may be able to capitalize on the potential of gold as a safe haven asset and wealth preservation tool in the face of the new great depression.
Gold as a Safe Haven Asset During Economic Instability
Gold as a Hedge Against Economic Uncertainty
As the world faces the prospect of a new great depression, characterized by depressed growth and rising debt-to-GDP ratios, investors are increasingly turning to gold as a safe haven asset. Gold has a long history of serving as a store of value and a hedge against economic uncertainty. During times of crisis, when traditional financial markets are in turmoil, gold tends to maintain its purchasing power and even appreciate in value.
The Potential for Significant Returns
Investing in gold during the current economic climate not only provides a measure of safety but also offers the potential for substantial returns. Jim Rickards, a renowned financial expert, predicts that the price of gold could reach a staggering $115,000 per ounce by 2025. This projection is based on historical trends and the average gains observed during previous gold bull markets. If Rickards’ analysis proves accurate, investors who allocate a portion of their portfolio to gold could see significant gains over the coming years.
Diversification and Portfolio Resilience
In addition to its potential for appreciation, gold also plays a crucial role in diversifying investment portfolios. By including gold in a well-balanced portfolio, investors can reduce their overall risk exposure and enhance the resilience of their investments. Gold’s low correlation with other asset classes means that it can help offset losses in stocks, bonds, or real estate during times of market volatility. This diversification benefit becomes even more valuable as the global economy navigates the challenges of the new great depression.
Act Now: Acquire Gold to Maximize Gains and Preserve Wealth
Safeguarding Wealth in Turbulent Times
As the global economy faces unprecedented challenges and the specter of a new great depression looms, savvy investors are turning to gold as a means to protect their wealth and potentially capitalize on substantial gains. With renowned financial expert Jim Rickards predicting that gold prices could soar to an astonishing $115,000 per ounce by 2025, now is the time to consider allocating a portion of your investment portfolio to this precious metal.
The Power of Diversification
Gold’s unique properties make it an ideal asset for diversifying your investment portfolio. Its low correlation with other asset classes means that it can serve as a hedge against market volatility and economic uncertainty. By including gold in your portfolio, you can reduce your overall risk exposure and enhance the resilience of your investments, particularly during times of crisis when traditional financial markets may be in turmoil.
Seizing the Opportunity for Substantial Returns
In addition to its role as a safe haven asset, gold also presents a compelling opportunity for investors seeking significant returns. Jim Rickards’ analysis, based on historical trends and the average gains observed during previous gold bull markets, suggests that the current economic climate is ripe for a surge in gold prices. By acting now and acquiring gold, you can position yourself to maximize your potential gains and secure your financial future in the face of the new great depression.
