first majestic silver

Crashing U.S. Dollar vs Gold (Part 2)

Founder & Chief Editor of Gold Eagle
November 1, 2013

For Part 1, please see:

For Part 3, please see:

The most important question for all investors today is:  How much must the greenback be devalued (again) in order to finance the soaring National Debt and incalculable future Obamacare costs so that the country can avert a looming U.S. Debt Default.

Here is the sad graphic history of the U.S. Dollar during the past 100 years – the greenback’s purchasing power has inexorably plummeted from $1.00 (1913) to a mere nickel (i.e. to 5 cents in 2013):

Courtesy of GoldStockBull


Effectively, the US Dollar has suffered a Compound Annual Decline Rate of -2.95% during the past 100 years. Contrarily, gold vs dollar rate has enjoyed a Compound Annual Growth Rate (CAGR) of +4.27% during the past 100 years (ie from $20.65/oz to $1,325/oz on October 31, 2013).  This begs the question:  During the next several decades will the US Dollar vs gold continue to decline on-balance, while gold forges ahead on-average at the same rates?  Actually, going forward the US Dollar Compound Annual Decline Rate in purchasing power will probably plummet precipitously due to the exponentially soaring National Debt…as the U.S. Fed frantically prints money to avoid default. Inversely, the gold price will fly parabolically to all-time record values year after year after year. This is precisely the reason why global Central Banks are methodically accumulating gold. Moreover, the demand for gold is rising geometrically in China and India (today the world’s largest consumers of gold).  

Per renowned analyst Jason Hamlin:

“The dollar historically has an inverse relationship to gold. As the dollar continues to lose its role as world reserve currency and its purchasing power declines, the gold price will move higher. Mike Maloney and other analysts have calculated that the gold price needs to climb (eventually) past $15,000 per ounce to account for all of the paper dollars that exist today. As more and more money is printed and debt is monetized, this target price only increases.”

Since 2002 the nation’s Federal Debt has been soaring exponentially.  See chart below:

“The problem for central banks is that the alternative to maintaining an increasing pace of monetary growth is to risk triggering a widespread debt crisis involving both over-indebted governments and also over-extended businesses and home-owners. This was why the concept of tapering, or putting a brake on the rate of money creation, destabilised worldwide markets and was rapidly abandoned. With undercapitalised banks already squeezed between bad debts and depositor liabilities, there is the potential for a cascade of financial failures. And while many central bankers could profit by reading and understanding this article, the truth is they are not appointed to face-up to the reality that monetary inflation is economically destructive, and that escalating currency expansion taken to its logical conclusion means the currency itself will eventually become worthless.”

(Source:  Alasdair Macleon – GoldMoney)

According to monetary pundit John S. Chamberlain, it is virtually impossible for the U.S. government to default on the National Debt.  Here’s why:  “Historically, governments prioritize debt service above all other expenses. If the expansion of funds via debt becomes impossible, the Treasury will cease paying other expenses first, starting with "nonessential" discretionary expenditures, and then move on to mandatory expenditures and entitlements as a last resort.

In extremis, what will happen is that all the losses will be foisted onto the Federal Reserve. The Fed holds [today] something on the order of $1.6 trillion in debt issued by the Treasury of the United States. By having the Federal Reserve purchase blocks of Treasury Debt (i.e. T-Bonds) and defaulting on these non-investor-held securities, the United States can postpone a default against real investors essentially forever.”

Gold Price Forecast

The future gold price estimations shown below are premised upon its historic growth rate since 2001, when the current secular bull market began at a gold price of $256/oz.  It also takes into account today’s gold price of $1,325 (October 31, 2013). Consequently,  it is calculated that the gold price has enjoyed a CAGR of +13.66% since 2001 to date.  Now assuming the CAGR remains constant for the 5-year, 10-year and 15-year periods shown below, here are the estimated future gold prices per ounce.  

  • In 2018 the gold price might top $2,564
  • In 2023 the gold price might top $4,865
  • In 2028 the gold price might top $9,228

Helping to fuel the gold price to these lofty heights is the parabolically soaring National Debt, shown here graphically by the ominous real-time U.S. National Debt Clock:

Based upon 100 years of dollar vs gold history, it is safe to say the inverse dollar vs gold relationship is immutable…only time and magnitude vary.

Founder of Gold-Eagle in January 1997.  Vronsky has over 42 years’ experience in the international investment world, having cut his financial teeth in Wall Street as a financial analyst with White Weld. Vronsky speaks three languages with indifference: English, Spanish and Brazilian Portuguese.  His education includes a degree in Petroleum Engineering from the University of Oklahoma, a Liberal Arts degree from Hartnell College and a MBA in International Business Administration from UCLA – qualifying as Phi Beta Kappa and Tau Beta Pi for high scholastic achievements.  Vronsky believes gold and silver will be recognized as legal tender in all 50 US states and many countries worldwide.  You may reach I. M Vronsky at: [email protected] and/or [email protected]

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