Gold in today’s environment still has great potential should the extreme occur such as overseas buying of U.S Treasuries falling for 3 months running below the level of the U.S trade deficit. This is the Current Account (balance of payments) showing that the money flowing out of the U.S far exceeds the flow coming in.
This illustrates that spending is greater than earnings … and thus government earnings are also far less than then the debt they owe making bills due unserviceable. Like the ordinary householder if you cannot pay your bills your credit rating is lowered and thus your ability to gain extra funds is slowly diminished.
The ‘point of no return’ as described by “Mr. Sinclair” would be considered as three consecutive months where the inflow of funds did not meet the required spending in the U.S on a Federal level.
This situation would be a massive ‘dent’ in the U.S economy and that is when Gold rises in price within the ‘U.S Treasury’ by the amount of Gold it has stored times the ‘market price’ equal to the value of all the outstanding liabilities of the U.S Treasury globally. It must be noted “NOT” at the level the U.S Treasuries are ‘trading’ but rather at the level of the borrowing itself at par which is a $1000 per bond.
The level of the USDX in comparison to 1979 when calculated to “TODAY’S” real value would be equivalent to the value of .56 to the Euro. The U.S Dollar has traded above 1.20 level to a low of .80 and certainly threatens that low again in the very near future.
The question remains can the U.S Dollar return to the .56 level???
According to Mr. Sinclair “of course it can, it has been there once and it can do it again.”
Gold hit its high of $887.50 oz. at the same time the U.S Dollar hit the .56 level and the U.S official interest rates hit 14 7/8% yield on 10 year Federal Paper.
At that point in time the value required of Gold times the amount of ounces held by the U.S Treasury in order to equal what was owed to non-U.S owners or Treasury instruments calculated not at the value of the instrument but at the price of the loan at $1000 per bond was $901 an oz.
You got to admire the caliber of Mr. Sinclair for the high reached $887.50 … not to “shabby” wouldn’t you agree!!!
So Gold only requires 3 months of the amount the U.S economy borrows internationally, that is the inflow of capital does not equal what the U.S economy spends, the economy’s outflow.
