By Egon von Greyerz
To measure currencies against each other never tells the whole story. Since all currencies are in a race to the bottom, the only correct way to measure the absolute performance of a currency is against a fixed value. Gold is the only money which has survived throughout history. And still gold is far from perfect, especially in recent times when the price has been kept down by a massive amount of paper gold issued by futures exchanges and banks. Once this paper gold market defaults, gold will go up by multiples of the current price.
So let’s have a look at how gold has performed against the only real or true money that has ever existed. The reason why gold is real money is because it is the only currency that nature has produced. Sadly, no money that man has produced has ever survived. In 45 years the best performing currency, the Swiss franc has lost 87% against gold whilst the two worst ones the dollar and the pound have lost 97% and 98% respectively.
It is absolutely remarkable that the U.S. and U.K. currencies in just under half a century have lost all but 3% and 2% of their value. Currencies will reach their intrinsic value of zero in the next few years. Something that has fallen in value by 87-98% is guaranteed to complete the journey until it has lost 100%. Anyone betting against that would be certain to lose his bet. So it is not a question of if but only of when. What will happen next, is a debt and dollar collapse which will lead to global money printing of proportions never before seen in history. This hyperinflationary phase which could take place in the next few years will totally destroy the value of all money and also of many of the bubble assets that were financed by the credit boom.
When this situation unfolds in the next few years, gold is guaranteed to go well above $10,000 in today’s money and silver over $500. But we are of course not going to see today’s money in a hyperinflationary world. Therefore, the gold and silver prices will depend on how much money is printed. A price of $100 billion or $100 trillion per ounce like in the Weimar Republic would not be impossible. But that is of course a meaningless level in today’s terms. What is certain however, is that gold and silver will vastly outperform inflation and therefore do a lot better than just maintaining purchasing power.
It is virtually impossible for most of us to fathom what will happen to the world’s financial system, to currencies and to precious metals in the next few years. But what is certain is that physical gold and silver at current prices represent the best form of wealth preservation and insurance that anyone can own. Owning precious metals in the coming crisis should not be an option but a necessity.