Gold Isn’t Expensive, It’s Just Your Money Is Worthless

Gold Isn’t Expensive, It’s Just Your Money Is Worthless

Today I want to introduce you to someone you’ve never heard of.

And trust me, he likes it that way. He’s done everything he can to protect his privacy.

As he said to me when I sought him out, ‘Why do you want to talk to me? I have nothing to sell…no product. I’m simply a private investor.

Nonetheless, this man I unearthed is highly sought after to speak at the biggest precious metals investment conferences around the world…

…the sort of events an ordinary investor can’t buy a ticket to…

The type of events he presents at, a person has to register.

And after providing some information about yourself, the organisers will decide if you are a ‘qualified investor’.

Only then will you be sent an invitation to BUY a ticket to the event.

So if you ever manage to get to one of these precious metals events, you’re rubbing shoulders with private family money, wealthy individuals, and hedge fund managers.

Institutional investors fly from all over the world to hear him speak at these exclusive conferences.

Are you following me here?

People managing vast amounts of wealth seek out his opinion. In turn, wealth managers and advisers can use this information to guide their clients’ investments.


The expert you’ve never heard of

Allow me to introduce you to a recent interviewee you’ve never heard of, Claude Bejet…the guy big money turns to.

That’s it.

No fancy title to follow his name (none), no long-winded description of which hedge fund he is managing (none)…or how many degrees he has (two, by the way).

Claude — French born, now Swiss based — and I would talk twice more over Skype before we managed to sit down for our interview.

Aside from being coveted on the speaking circuit, Claude works hard to maintain his anonymity on the internet. ‘That is not because I am a crank,’ he told me late one night over one of our first Skype calls. ‘I like privacy. It is simple.

And trust me, it took some convincing to get Claude to speak to me.

But there was a good reason why I wanted to share his thoughts with you.

Because Claude has a unique way of looking at gold, and what it’s worth when compared to your dollars.

Calculate the value this way

With gold trading above US$1,460 per ounce, people often ask me if they’ve missed out on the chance to buy gold.

Worse, when I tell them it’s closer to AU$2,150 in Australia per ounce…they back off.

That’s too expensive they tell me. Yet, the gold price rally is just getting started.

And again, this is something Claude and I cover in depth.

You’ve just got to look at the ‘cost’ of the yellow metal differently.

The traditional rule when it came to the value of gold, is that it should be roughly worth the same as all the balance sheets from the four major central banks: the Federal Reserve Bank (Fed), the Bank of England (BoE), Bank of Japan (BoJ), and the European Central Bank (ECB).

In turn, that balance sheet ‘value’ should equal the worth of all the gold above ground.

The theory goes that if the balance sheets of these four central banks expands (ie: they have more ‘assets’ under their control), then the price of gold should rise to reflect that.

For a long time this was a fairly neat correlation…the only two times it broke was in 1938 and again in 2013, when the Fed said they were ending their quantitative easing program. And that correlation has not repaired itself.

Which is why Claude says that people need to stop thinking that gold is expensive, and compare it to the value of your own central bank’s balance sheet.

For example, the Federal Reserve Bank has expanded its balance sheet four times over since 2008. In other words, it’s grown the assets it manages from US$1 trillion in 2008, to almost US$4 trillion in 2019…

The problem is by increasing the supply of money in the financial system, it erodes your purchasing money. Basically, your money buys less and less.

So, according to Claude, it’s not that gold is expensive, it’s that the value of your money has been lost.

Hence why Claude suggests looking at what your central bank has done with its balance sheet, and then work out the price of gold per ounce.

Gold is set to get cheaper…

One way to do that, is to look at how many times your central bank has expanded its balance and then divide the ounce of gold in your own currency by that. Let’s use the US dollar gold price as our first example.

The Fed has expanded their balance sheet four times in the past decade.

So you take the price of gold in US dollars (US$1,460) and divide that by four…and you come out with a figure around US$365 per ounce.

Meaning, the gold price in US dollars looks relatively cheap based on central banking actions. Compare that to Australia, where the Reserve Bank of Australia has only increased the balance sheet two times in that time.

That means an ounce of gold in Australia, is about $1,080 per ounce.

What we learn by doing this, is seeing just how far the price of gold has disconnected from the expansion of major central banks’ balance sheets…

Looked at another way, this suggests that the price of gold is actually much cheaper than the supply of fiat dollars in the financial system.

Here’s why this perspective matters.

As the financial crisis unravelled in the end of 2008, major central banks around the world started quantitative easing.

Essentially flooding their local economy with money. Which is why the balance sheets of central banks got bigger.

Australia however, didn’t start quantitative easing.

Yet based on our Reserve Banks’ recent rate cuts — and the potential to cut more in 2020 — there is a chance that quantitative easing will happen here…

And do you know what that means?

That the RBA will expand our balance sheet.

Which means that if we apply Claude’s theory…gold in Aussie dollars could be set to get much cheaper per ounce.

Like I said, this is why it pays to talk to the folks that big money talks to.

Until next time,

Shae Russell Signature

Shae Russell,
Editor, The Daily Reckoning Australia