WEST PALM BEACH, FLORIDA – I think the correction in the gold market is over. Gold should be on its way to new highs now.
First, it’ll rise above $1,703, the seven-year high it set two weeks ago. Then it’ll rise to $1,909… and then go on to set a new all-time high. More on this below.
All-In on Gold
As regular Postcards readers know, we’ve bet all our money on a fall in the Dow-to-Gold ratio to below 5.
Right now, the Dow is at 21,200. Gold is at $1,607. So the Dow-to-Gold ratio is at 13.2.
That’s a 35% drop since we first started following this ratio in the fall of 2018. But I don’t think its decline is over yet.
We’re about to see hyperinflation in the Federal Reserve’s balance sheet. (The Fed is already printing $1 trillion every 10 days.) And the Treasury’s new spending package is huge (quoted today at $6 trillion).
So expect a lower Dow-to-Gold ratio ahead.
Gold’s Rise Over the Next Decade
This chart shows a potential path for the gold price over the next 11 years.
It’s just a theoretical projection… a sort of artist’s impression. But these moves tend to follow predictable patterns.
I imagine gold’s rise will end up looking something like that.
By the way, I think physical gold may already be at an all-time high. A friend of mine paid over $1,900 for a one-ounce gold coin today. I suspect many others have too…
Gold Shortage: A Temporary Dislocation?
If you’ve been reading these Postcards, you know there’s a severe shortage of physical gold.
More news from Switzerland: Three of the four major gold refiners just announced they will be halting production and will not be supplying gold bars to the market until further notice.
The fourth major refiner is still taking orders, but it won’t be able to deliver orders for four weeks.
Yesterday there was also a dislocation at the Comex – the major gold futures exchange in New York – because there wasn’t enough physical gold to satisfy buyers. Some sellers had to default on their promises to deliver gold.
At one point, the futures contract in New York was trading $80 higher than the spot price in London. Normally, these prices are the same.
Is this all just a temporary dislocation caused by coronavirus issues? (That’s what they’re saying.)
Or is it because physical gold is being hoarded all around the world… and it’s causing a “run on the bank” in the gold bullion markets?
You probably know that banks lend out far more money than they hold in their vaults. They assume their depositors will not all ask for their money back at the same time.
Gold banks do the same thing. They might lend 10 tons of gold for every ton they hold in the vault. Then they hope the owners of the gold do not ask to withdraw it. We’ll see…
Why the Fed Wants Higher Gold Prices
The Federal Reserve “owns” eight tons of gold… through gold certificates it received when the Treasury confiscated gold from the American people in 1933.
That gold is worth about $431 billion at current prices. It’s the bedrock asset upon which the Fed’s $4.75 trillion balance sheet rests… even though few people know about it.
Yesterday, I suggested the government may actually want a higher gold price to ease the deflationary grip on the economy.
The above is another reason the government might want a higher gold price.
A higher gold price would give the Fed’s balance sheet a bigger backing. It would help maintain confidence in the Fed’s balance sheet while they hyperinflate.
Watch the Dollar
As I’ve been saying, we must watch the dollar.
This week the dollar FELL. It means the Fed is winning the battle and unclogging the pipes in the financial system.
It’s only been three days since the dollar started falling so far, though. Way too early to declare this financial crisis is behind us.
– Tom Dyson
P.S. Please read this blog post. The author has a proposal to save lives AND get America open for business again quickly. In my opinion, it’s the ONLY solution. And it’s worth trying…
P.P.S. Over the past few days, I’ve been sharing some of the homeschooling tools Kate and I use. Catch up here. Another resource we like from YouTube is called Art with Mati and Dada. It’s a good way to learn about the Masters in an entertaining and kid-friendly way.
Today, readers thank Tom for his homeschool tips… and ask how they can increase their gold exposure…
Reader comment: Love your Postcards and I’m actually feeling increasingly dependent on them. Not to mention the withdrawals that I get over the weekend. I wish you and your beautiful family much health and happiness in these troubling times.
Can’t wait for you to be able to get back on the road again, but for now it’s good to reconnect with family. Thank you too, for the “Homeschool Tools” tips for the kids. I’ve been forwarding them to our grandkids.
Reader comment: Thank you for the great articles and advice! We (my wife, really) homeschooled our children. And while they finished high school in public school, I believe the early education put them on a higher plane of knowledge, discovery, inquiry, and acceptance.
I cringe when I read the comments that you receive some days. There are those types of people amongst us… I hope you can discount their negativity and hesitancy and continue on your adventure of discovery!
Reader comment: I’ve been following your Postcards for several months now as you’ve traveled around the world and expounded on your Dow-to-Gold ratio theory. Despite the rise of gold over the past year or so, it was no match for the ever-rising stock market, and I have to admit to being somewhat dubious about your “all-in” strategy.
However, given the calamitous, economic and monetary, knock-on effects that the coronavirus is causing, your approach now appears very prescient. I’ve been a Stansberry subscriber for many years, have just started reading Bill Bonner’s Diary again, and you have all left me thinking there is now no other alternative.
Here’s my question for you though… I’m actually investing for both me and my two children, as they were each left 25% of my parents’ estate. Given that they both have 40+ years left until retirement, would your advice differ for them?
Tom’s response: If I had 40+ years left until retirement, I would buy high-quality dividend companies somewhere near the bottom of this bear market and bury the stock certificates for 40 years… or until the next time there’s a bubble in the stock market. Such a strategy would give rise to Buffett-like, compounding returns over that sort of time period.
In the meantime, the best strategy is sheltering in gold until the Dow-to-Gold ratio hits 5 and we know the bear market is almost finished.
Reader question: For those of us looking to obtain exposure to gold from within IRA plans, what are your thoughts on holding UGL to target 2x the return of gold?
Tom’s response: I can’t stand 2x ETFs, not just for gold, but for everything. They don’t work.
While other readers share stories of healthcare professionals on the front lines of the coronavirus pandemic, after Tom requested them last Thursday…
Reader comment: I am a registered nurse working in Houston, Texas. I want to thank you so very much for your daily emails and for the education that you’ve given me into my family over what’s going on behind the scenes in our monetary world these past few weeks.
As a nurse working in patient care every day, it has become quite stressful. I have two young boys, and I have become overly cautious in dealing with my patients every day. I feel like my calling is to help those in need, and I go to work with that mindset every day. It is my ministry.
But my hands are dry and cracked from the constant washing, and our hospital has been great and limiting access to visitors over this past week. As I talk to my coworkers, we feel that all we can do is try to be as careful as we can in going from room to room and patient to patient. The last thing we want to do is infect ourselves or others.
Reader comment: My son’s wife, Elizabeth, is a health care worker. She has four children ages 2 to 9. She also has a big house to care for and she works nights. She is working in the pediatrics department, and I am sure she deals with a lot of sick children these days.
Reader comment: My granddaughter is a brand-new nurse. She did her orientation in late January and her first day was February 1, if I remember correctly. Please pray for her. She is only 22 years old. She loves being a nurse. She loves God, her husband, and her family.
Reader comment: I enjoy reading your posts. My niece is an ER nurse with Mt. Sinai Hospital in Brooklyn, New York. She’s been working 12-hour shifts, four days on, two days off. She is four and a half months pregnant. Just this week, the hospital put her on medical leave (no paycheck) for 30 days. She is without an income and, more importantly, concerned for the effects this virus may have on her unborn child. Prayers to all.
And still, others defend Tom after a reader called him a mooch… and express gratitude for the Postcards…
Reader comment: Seems like you are more of a duck than a mooch letting that comment roll your back like that. It seems it irritates me more than you, and I’ve never met you or your family.
To the mooch commenter: You must be new to the Postcards and missed the worldwide travels this family has been on for the past years. They made a trip to visit family (grandparents) and a pandemic broke out. Would you rather they continue traveling amongst a worldwide outbreak and put the whole family at risk? Get a clue. If someone needs to grow up, look in the mirror. Stop trolling from a keyboard about private circumstances you know nothing about. P.S.: This was the civilized response.
Reader comment: I love the Postcards, Tom. Particularly, I highly value your insights into what’s going on in the markets (like today’s postcard regarding the freezing up of the bond market) so I can make better decisions.
Reader comment: I enjoy reading your notes every time. At first, I skipped the personal parts, but now I look forward to reading about your family even more! I hope you are all staying well in these scary times.
Reader comment: I hope all is well with you and your family. Whenever I get a chance to, I forward your posts to my peers and encourage them to sign up for your daily post subscription. Not because of gold investment, but because you explain well, in layman’s terms, to all the mercenaries (fathers and moms and unmarried ones as well), what is happening with all the money creation, how it affects inflation, and the future choices that the Federal Reserve and central banks are forced to make. And you explain what (and how) we, the mercenaries, should do in preparation.
Tom’s note: Please keep writing us at [email protected]! Kate and I read every message you send us.