23 June 2015

The Age of Soaring Debt

One of the reasons this current time period in history is so unprecedented is that much of the developed world is swimming in a sea of debt. Instead of addressing the debt problem, most countries are attempting to devalue their way out. 

We mentioned in an article a couple of months ago that according to consulting firm McKinsey and Company global debt now stands at approximately $200 trillion. This figure is greater than twice the global GDP which is about $75 trillion.

The worlds major currencies are all vulnerable to the excessive debt load. The Euro, Yen, Dollar and Pound are all backed by nothing but a promise. One of the reasons why currency wars will escalate in the coming years is that Central Banks know that the debt can never be paid back, only inflated away.

What if Gold Backed all the Debt in the World

According to an article on GoldSilverWorlds.com the GFMS Gold survey estimates that there have been 183,600 tonnes, or 5.9 billion ounces of Gold exhumed in the world. If that figure is multiplied by the closing price of Gold on June 16th of $1,181 per ounce, the value of all Gold comes in at almost $7 trillion.

What is more interesting is that if Gold backed all the debt in the world at 100% Gold would be trading at $33,900 an ounce. (Source: GoldSilverWorlds 2015 June 18th)

Another interesting statistic that was brought out in the article is that when the US went off the Gold standard in 1971 the Federal Government owed $399 billion. Since then the debt has swelled 4,411 percent to $18 trillion. 

Gold may never trade at $33,900 an ounce but the example shows that in a world where there is so much debt and fiat currency an asset like Gold is likely to become extremely valuable in almost every currency.

A New Era of High Volatility

As the second half of the year kicks off market participants are coming to the realization that after years of monetary easing by Central Banks the unintended consequences are arriving. These unintended consequences are massive swings in asset prices.

According to an article in ZeroHedge, the Shanghai Composite Index was down more than 13% last week. This was the largest one week decline since the collapse of Lehman Brothers. (Source: ZeroHedge 2015 June 20th)

Now stocks have joined the volatility with currencies and bonds. It would appear that more and more large investors are going to be moving away from risk assets. This could be a nice set up for Gold.

Author: celticgold.eu

Older CelticGold Market Report 21st June 2015 Newer Signs of Financial Turmoil Are Brewing