Palisade Research - Mon, May 8, 2017

The United States Is Hosting A Debt Party: $2,000 Gold Is Coming

picture of a pin ready to prick a bubble

"The trifling economy of paper, as a cheaper medium, or its convenience for transmission, weighs nothing in opposition to the advantages of the precious metals: that it is liable to be abused, has been, is, and forever will be abused, in every country in which it is permitted ..." Thomas Jefferson

The US has seen accelerated debt build-up since the early 1980s, before culminating in the financial crisis of 2008-2009.

You would think everyone would learn their lesson and ease off the gas, but the exact opposite has occurred! Debt levels are now at record highs, staving off GDP growth.

area chart showing U.S. GDP versus debt from 1947 to 2019 as forecast, with debt becoming higher than GDP

In 2014, debt over took GDP for the first since post-World War II. Unfortunately for the United States, it is no longer the world's only superpower. After WW2, the US was the beneficiary of having its infrastructure unscathed, and was essentially the world's manufacturer. The baby boomers benefited immensely, with low tax rates and generous pensions.

Today it's a different story. Extreme debt has slowed economic growth, and the world's central banks are forced to print money to continue growing and service debt.

China's economy grew fast than expected last year, but this of course was throttled by higher government spending and record bank lending. China's debt to GDP ratio is a staggering 277%, with increasing new credit being used to service debt. Japan's debt to GDP has increased to 250%, the United Kingdom's to 123%, and France's to 122%.

For every dollar of GDP growth, we are adding $1-2 dollars in debt!

line chart showing the gold price compared to U.S. debt:GDP ratio from 1947 to 2016

What does this mean for gold?

Since the end of Bretton Woods, gold has followed debt. We saw a period of divergence, but this was quickly rectified by a spike of 500% in gold price.

Currently, we are seeing another divergence, and we believe another spike is in the works. While gold is already on the mends, the resulting rally can easily put gold over $2,000/oz. or more.

The world cannot fix its debt problem overnight. In the near future we see a sustained period of economic drought and gold price abundance.

InvestorsGuru.com publishes interesting contributor articles in addition to its own content. We have not verified any of the above details.

Sign-up at InvestorsGuru.com (or blog.InvestorsGuru.com) for our Small Cap Stock Observer newsletter, and to set-up your own My Portfolio, My Watchlist & Alerts and News by Email preferences, or to post at our AnyTicker.com Bulletin Boards. Free!

Please note that nothing in this report should be taken as a recommendation in any way, and that everything from InvestorsGuru.com is subject to the terms of our Privacy Policy and Disclaimer.

comments powered by Disqus

Detailed Quote Portal

symbol lookup | (TSX add :ca)

Membership Privileges

  • Investors Guru Small Cap Stock Observer - newsletter emailed monthly!
  • Featured Stock Profiles - emailed on occasion!
  • News by Email - as it's released, according to your My Preferences!
  • My Portfolio - login to view or update your holdings, or have it emailed daily!
  • My Watchlist & Alerts - login to view or update your stock radar list, and set price triggers for email alerts!
  • Bulletin Boards - no need to request boards, just Quote it! Social Sign-on & Share your ideas, observations & trends!
  • Find it all! Find it Fast! Comprehensive stock research webpages. No more endless clicking!

Email: (see Privacy Policy)
Password: (4-15 characters)
Username: (4-15, BB posts etc)

unsubscribe anytime


Bookmark and Share

 Subscribe in a reader

Our Mobile Site