On November 1, 2023, just as the price of gold reached its record high price of $2,000 per troy ounce, I clearly stated my position that $2,000 gold was just the beginning.
As usual, my argument was grounded in history. Back in the 1960s and 1970s, US government spending soared thanks to the mounting costs of the Vietnam War coupled with incredibly expensive social initiatives dubbed ‘The Great Society’.
The national debt exploded as a result.
Then, throughout the 1970s, the US suffered an incredibly humiliating withdrawal from Vietnam, complete with a helicopter airlift from the US embassy in Saigon. The Cold War with the Soviet Union was at its peak. Serious trouble brewed with Iran. War broke out in the Middle East.
Civil unrest and ‘mostly peaceful’ protests were also a constant problem in the 1970s, and major cities like New York, LA, and Chicago became synonymous with violent crime.
It was also a time of soaring inflation, weak leadership and political chaos in the US, not to mention rampant criminality in the federal government.
All of this led to a significant loss of confidence in America’s standing on the global stage.
Simply put, the world stopped making sense, and gold became a safe haven from that chaos. That’s why the gold price rose more than 20x over the course of the decade.
When I wrote to you back in late 2023, I described a number of similarities between the 1970s and the 2020s. Chaos and criminality. Weakness and war. Humiliation and inflation. Oh, and that little thing called Covid.
Similarly, the world stopped making sense in the 2020s.
And based on that conclusion, I wrote that $2,000 gold was just the beginning of a much bigger story… and that the price of gold would continue to surge.
It’s not hard to understand why.
Back in late 2023 when I wrote that article, the US national debt was around $33 trillion (it’s up $3+ trillion since then).
The federal government had recently ended its fiscal year (FY23), in which it spent every tax dollar collected just to pay interest on the debt, plus mandatory entitlements like Social Security and Medicare.
100% of US government ‘discretionary’ spending, which includes everything from the military and homeland security, to national parks and federal courts, had to be funded with more debt.
I assumed that this trend of higher spending and higher debt would continue. And it did.
The following year, in FY24, the government spent an unbelievable $1.1 trillion just to pay interest on the national debt— vastly exceeding the defense budget. Plus the FY24 budget deficit increased to more than $1.8 trillion.
So the fiscal situation has only become worse. Not better.
The other issue that I foresaw driving backlash against the dollar was the heavy-handedness of the US government against other nations.
Whenever foreign governments (or even foreign businesses) did things that the US government didn’t like, the Biden administration’s knee-jerk reaction was to impose— or at least threaten— sanctions.
In many respects the only reason that the US government even has the power to sanction other nations is because the dollar is the dominant global reserve currency.
If Costa Rica threatened to sanction other countries, everybody would just laugh… because Costa Rica has no power. But America has enormous power, simply because the rest of the world has to use US dollars for global trade and commerce.
I concluded that, sooner or later, foreign governments would get tired of being pushed around by the US government and start seeking alternatives to the dollar. This is also happening.
One thing that modern history makes very clear is that global monetary regimes tend to reset every few decades.
We can go back to the year 1867 in which the International Monetary Conference in Paris ultimately led to a global gold standard.
This gold standard lasted for a few decades… until World War I broke out. One by one, sovereign governments suspended their gold standards, causing significant disruption to the global monetary regime.
Three decades later, the global financial system was reset at the Bretton Woods Conference which anointed the US dollar as the global reserve currency… on the understanding that the dollar would be backed by gold.
This system lasted for 27 years, when, in 1971, Richard Nixon took the US dollar off the gold standard; this led to a system of “fiat currencies” around the world which were backed by nothing but phony promises from politicians and central bankers.
That system was adjusted once again in the late 1990s in the wake of the Asian financial crisis, and Russia’s sovereign debt default, in which most of the developing world piled into US dollars to hold their reserves. Foreign ownership of US government bonds skyrocketed as a result.
That system has lasted for a few decades— during which period a number of countries (like China) bought up trillions of dollars of US government debt.
Well, we are now witnessing in real time what appears to be another reset in the global financial system. And in some respects, it may even be planned.
The main problems that foreign governments and central banks have against the US dollar— the Treasury Department’s heavy-handedness, the constant threat of sanctions or tariffs, and the unimaginably high levels of debt— are still absolutely present.
And on top of that, this new administration is actively floating what has been dubbed the Mar-A-Lago Accords, i.e. an agreement to force America’s foreign bondholders to reset the financial system.
Just as predicted, all of this uncertainty has been incredibly bullish for gold— primarily because foreign governments and central banks are aggressively seeking an alternative to the US dollar.
At the moment, nobody really knows what the next global financial system will be.
Personally I don’t think the dollar is going to disappear as a reserve currency. But “King Dollar” probably won’t dominate the world— instead perhaps it will be “Earl Dollar” or “Viscount Dollar”, in a mix with other currencies.
No one knows for sure. And that’s why central bankers have been buying gold— because it’s the only asset in which they can have complete confidence. No matter what the new global financial system looks like, gold will continue to have value.
It has been those central banks buying up gold (literally by the metric ton) and pushing prices to record highs.
We said in November 2023 that $2,000 was just the beginning. We’ve just hit $3,000 gold.
I won’t say that is “just the beginning.” But it certainly is not the end to this story.
