James (Jim) Rickards is a top financial adviser and the author of a series of best-selling books, started with “Currency Wars: The Making of the Next Global Crisis” (2011) and “The Death of Money: The Coming Collapse of the International Monetary System” (2014). Rickards’ following books, both published in 2016, send out warnings of an impending global financial collapse and make a solid case for investing in gold.
Though the title of Rickards’ last book published in November – “The Road to Ruin: The Global Elites’ Secret Plan for the Next Financial Crisis” – may sound like one more conspiracy theory, it’s worth bearing in mind that conspiracy theories often contain elements of truth worth considering and acting upon. For example, in this case, buying gold seems a wise choice.
“When the time comes, the government will steal your [dollars] with inflation and taxes, but you still have the gold.”
Rickards third book, “The New Case for Gold” (April 2016) is entirely focused on why one should invest in gold, and how to do that. Not the “paper gold” that many banks offer in obscure investment vehicles, but real, actual, physical gold that you own and store with a reputable non-bank operator. The banks operate on a fractional reserve basis, so their paper gold is mostly virtual and you might not be able to exchange it for physical gold when the need arise. But physical gold is real, and is yours.
Rickards’ thesis is that, sometime in the next few years, triggered by clear signs of an impending collapse of the world’s monetary system, there’ll be a panic-buying spike in the demand for gold, which will send gold price skyrocketing to $10,000 per ounce (now it’s about $1,260, or $40 per gram). When the panic-buying spike happens, you won’t be able to buy any physical gold, because nobody will be willing to sell any: gold owners will think the panic spree confirms their worse fears of global financial collapse and stick to their gold.
Though using sensationalized titles to sell books, Rickards doesn’t recommend panic-selling all your stocks and bonds to buy gold instead. His actual recommendation is much more sober and conservative: 10 percent of your investable wealth (that is, ten percent of what you can afford to invest without high personal risks) should be in physically-owned gold. Following Rickards’ 10 percent recommendation seems a wise form of diversification, but most investors allocate much less than 10 percent to gold.
One frequently hears that, after US President Richard Nixon ended the US dollar convertibility to gold in 1971, the previous gold standard for the global monetary system has been replaced by a system of freely floating currencies, among which the US dollar is prominent. This is technically correct but, according to Rickards, a shadow gold standard is in place, still hidden in the backstage but moving to the forefront. Sometime in the next few years, a new financial crisis will force the top nation to sit down and design a new monetary system, partly based on gold. When that happens, a nation’s negotiating power at the table will depend on the reserves of physical gold held by the nation.
That explains why nations like Russia, and especially China, have been buying gold like crazy in the last few years and continue to do so. This is acting like a brake on gold’s price: China (for example) doesn’t want the price of gold to rise fast because it’s still buying, and puts price control measures in place. But once China has enough gold, it’s likely to stop control actions and let the price of gold rise to it’s “natural” and optimal value, which is higher than today’s.