The Gold Price War Debate HARRY DENT vs JAMES RICKARDS — Summary
Tags: Dent, Gold, Inflation, Deflation, Jim Rickards

The Gold Price War Debate HARRY DENT vs JAMES RICKARDS — Summary Jiagu Apr 25·4 min read

Dent’s points are signified by ‘D’, whereas Rickards by ‘R’. The ‘1s’ are introductory statements, whereas others include both counterarguments, as well as responses to questions given by the presenter. This summary has been made so that the questions are omitted.

Note that I have mentioned only what I thought essential.

R1 Drivers of the price of Gold:

Until 1971 (when Nixon broke the last link between gold and paper currency) gold was a form of money, and we have had 3 bull markets since then (currently in the 3rd, it began in 2015). According to the average by how much gold has risen in the previous bull markets, it would put it at $14.5k/o.z. in 2025. The possibility of a gold standard due to the collapse of the paper currencies (possibly starting with the USD). Considering the global M1 supply of the major economies, and a backing (historically gold standard worked well with 20%) of 40%, gives us ~$13k. The debt-to-GDP ratio is about 130%. Empirical data is suggesting that for a ratio of above 90%, the Keynesian multiplier drops below 1, which means it can’t borrow its way out of the debt crisis. To reduce the ratio, you either inflate or increase the GDP. A 75% devaluation of the USD would put the ratio at 30%, so something similar would put gold at $8k/o.z. Since 2010 central banks became net buyers of gold Mining output is flat High dependency ratio (1 grandchild/4 grandparents in China) due to demographics (can’t be automated) — labor shortage, low productivity, low growth = higher wages (inflation and an increase in the price of gold)

D1 He argues using numerous charts that we are in a deflationary season, and with each year we are getting further into it. Because of this, more QE is required to achieve the same effects, and there’s not much correlation between it and inflation. The current constant increase in debt and financial assets is unsustainable, and deflation is needed to return them to a normal level. Gold rallies in anticipation of QE, but since QE doesn’t cause inflation, gold eventually crashes. An example of the crash would be the halving of the financial assets (e.g. from 6x of GDP to 3x). He then says that gold often runs in 9-Year Cycles, due to its correlation with inflation (as opposed to BTC which is a bad hedge), and based on that it cannot go further than $2200, to eventually crash to ~$1000. According to a megaphone pattern on the S&P 500, every time you make a higher high, you make a lower low, which would be a -47%. The best thing to be in case of a deflation scenario are 30-year T Bonds/Zero Coupon 30-year. Although blockchain is the future (digitization of financial assets), BTC should go suffer a 95% crash (since it’s a bubble). He believes that Asia is going to be the dominant part of the world in the next several decades (India being the biggest growth story of the next 30–50 years), and since they love gold, it makes sense to buy gold after it crashes. If you want to cover all the bases: 40% SQQQ, 30% gold, 30% -bonds, though he himself would take only SQQQ and 30-year T-bonds.

R2 He explains that recessions are 2 consecutive quarters of declining GDP, whereas depressions are when growth is consecutively below trend (meaning you can have growth in a depression). He believes that gold is at an inflexion point where it tips from a deflationary environment into accelerating inflation (2022), and so you can’t extrapolate deflation like Harry does, but instead watch the tipping points.

D2 Depression is the deleveraging of debt and financial assets bubbles. Demographics predict that slowing deflationary workforce growth and its inflationary rise. The central banks will not want deflation to happen, but it will happen anyway as they have no choice in the matter. The rich will lose the most, not the poor.

R3 Money printing doesn’t cause inflation due to velocity — Friedman was wrong, instead of being constant it’s highly volatile. It’s currently low because central banks signal that they are afraid of deflation. The declining labor force isn’t deflationary, it’s inflationary. The only way you can deflate the debt is through defaulting (not possible) or by inflating the currency. 85% of global reserves are dominated in USD and EUR, which means that it’s the only cross rate that matters. To measure the USD, you have to look at gold (opposite price relationship). Gold going down in the immediate aftermath of Lehman, has nothing to do with gold, but the fact that leveraged investors get margin calls, and so they have to sell gold.

D3 You can’t possibly inflate the currency. He says that the data regarding labor growth since 1989 proves him correct (e.g. Japan has the lowest inflation, and has to print at a much higher rate to keep the deflation at bay). What deflates isn’t government debt, but private debt, making default possible.

R4 Central banks can’t themselves inflate the currency, but velocity (which is psychological, and not controlled by central banks) can.

D4 Long-term, yes, but not in a crisis (in which we are now).

R5 Vaccine doesn’t really matter, since the psychological effects will be with us for 30 years (e.g. many restaurants will never re-open, and their equipment will be for sale at fire-sale prices, moreover people won’t suddenly leave their houses the first chance they get). Tether’s printing is behind the BTC rise. BTC’s supply cap prevents its actual usage (no reason to borrow a deflationary currency).

D5 BTC is going to collapse (it isn’t an inflation hedge), but the blockchain will stay (and it makes sense to invest in them as new tech companies).