John Paulson favors precious metals in these tumultuous times, whether that be a geopolitical crisis, war, currency crisis, and economic crisis all rolled into one.
Gold is the classic safe haven asset retaining its tangible value during wars, failing currencies, collapsing empires, and economic depressions.
John Paulson favors precious metals, particularly gold, over the US dollar, the current reserve currency.
The crux to owning precious metals is that investors avoid counterparty risks in these tumultuous times.
Currencies backed by nothing intrinsic and created with nothing tangible, keyboard strokes eventually collapse.
“Gold is the classic safe haven asset retaining its tangible value during wars, failing currencies, collapsing empires, and economic depressions”
WEALTH TRAINING COMPANY
“Paper money eventually returns to its intrinsic value – zero,” Voltaire
The value of a debt based currency is underpinned by the creditworthiness of someone’s debt, and in most cases this is sovereign debt (government bonds). So a sovereign debt crisis is a catalyst for the collapse of a debt-based currency where cash is trash. When trust in the fiat currency collapses, investors exit debt-based investments.
Think about it. A bond investment is where the holder is promised a bundle of cash on the maturity plus yields in that currency.
But if that currency depreciates 20% against gold every year and the yields on the bond are 10%, wealth is being eroded by holding those bonds. In a sovereign debt crisis and a currency crisis that then follows, precious metals protect the holder against currency debasement.
The world’s reserve currency, the US dollar, is partially backed by global demand for US treasuries which partly finances the 32 Trillion USD public deficit that now costs more than 500 Billion USD a year in interest payments, the fourth largest budget item.
“Paper money eventually returns to its intrinsic value – zero”
VOLTAIRE
So the current Fed fund rate of 4.5%, with a juggernaut 32 Trillion USD public deficit, is bleeding the US economy dry, as it goes into debt to make interest payments on the debt and neglects public infrastructure investments.
In 2021 there were 574 US-classified train derailments due to poor track maintenance.
The US ranks eleventh place, behind Spain, for the quality of railroads, according to a 2019 quality of railroad infrastructure the survey, which was conducted by The Global Economy.
Crumbling US infrastructure and ballooning public deficit makes any Fed talk of raising rates to fight inflation a clown show and evaporates what little trust and credibility the Fed has left.
Further rate hikes and there could be a tsunami of sovereign debt defaults and currency crisis, with the first dominoes falling in Europe and eventually the US.
A year ago we wrote about trust in Fed policy nearing rock bottom, Fed will scramble to buy every ounce of gold to secure the currency, which is what they have done.
So John Paulson favors precious metals believing investors are better off owning gold than dollars.
“If you had dollars and 9% inflation, this year you lost 9% of your money; interest rates were nowhere close to compensating for that loss”
– John Paulson
John Paulson thinks the dollar is set up for long-term depreciation as the world drifts toward dedollarization
The extraordinary amount of money printing by the Federal Reserve has also undercut faith in the US dollar.
But tell me a G7 advanced economy, the insolvent seven, that is not sinking in debt today.
“If you had dollars and 9% inflation, this year you lost 9% of your money; interest rates were nowhere close to compensating for that loss,” said John Paulson.
Wealth destruction from holding cash is even worse for those holding GBP or EUROS.
John Paulson favors precious metals as global capital flows out of USD
Other countries do not want to rely on the dollar as much as they have in the past, and the US also has an enormous deficit with the rest of the world, in terms of trade and investment balances,” he said.
John Paulson favors precious metals as a long-term store of value
There has been a significant increase in demand from central banks to replace dollars with gold, and we’re just at the beginning of that trend. Gold will go up, and the dollar will go down, so you’d be better off keeping your investment reserves in gold at this point,” he said.
Central banks buying gold is no longer speculation, bearing in mind that central bank gold buying set a record in 2022.
John Paulson believes other currencies will likely rise in value against the dollar, but each has its issues
“The European Central Bank (ECB) has also printed a significant amount of money, and if you keep your money in fiat currencies, you face the risk, due to geopolitical events, that your reserves can be seized.
As the central banks did with Russia. China probably thinks that as they have so much of their reserves in dollars, if they get into a geopolitical spat with the Western world over Taiwan or something else there is a possibility these reserves will be frozen as they did with Russia,” he said.
John Paulson favors precious metals because investors avoid counterparty risk when you hold precious metals.
“If you possess physical gold, you don’t face that risk. You also have the potential for appreciation. We’re at the beginning of trends that will increase the demand for gold” – John Paulson
“If you possess physical gold, you don’t face that risk. You also have the potential for appreciation. We’re at the beginning of trends that will increase the demand for gold, and inflation and geopolitical tensions will determine the rate at which gold increases. This year, gold will appreciate versus the dollar, and also over a three, five, and 10-year basis,” he said.
Playing Devil’s Advocate with John Paulson favors precious metals thesis
The price of precious metals has been suppressed for decades as central banks, via the COMEX, manipulate the price.
Meanwhile, as we correctly suspected in 2021, central banks were buying gold hand over fist as trust in monetary policy diminishes with every fairytale passing.
So once the Fed has accumulated the gold, well below market rate, the Fed head can spin fairytales, and nobody will care because the USD will be underwritten by gold.
Gold is for Kings (central banks), and CBDC is for serfs (populous)
The King makes the rules, so when price discovery for gold is established, a law is passed which prohibits the possession of gold, forcing serfs to sell below market rate.
So gold has custodian risks, the King has all the guns.
