The Crash is Coming: Buy Gold at 50 Year Lows!

U.S. Household wealth is experiencing an unsustainable bubble. It has ballooned by approximately $46 trillion or 83% to an all-time high of $100.8 trillion, creating another dangerous bubble that is similar to the U.S. housing bubble of the mid-2000s.

The chart below compares U.S. household wealth (blue line) to the underlying economy or GDP (orange line). The difference between household wealth and the underlying economy has never been larger. This unprecedented gap means that the coming reversion or bust is going to be even worse than the last two.

Plotting U.S. household wealth as a percentage of GDP is another way of examining the household wealth bubble. The current bubble has inflated household wealth to a record 505% of GDP an all-time high. When the current bubble inevitably pops, household wealth may even fall below its historic average in reaction to how stretched household wealth became to the upside.

In order to understand the current U.S. household wealth bubble, it is important to understand the underlying drivers of it: U.S. Federal Reserve-driven bubbles in stocks, bonds, and housing prices. Creating an epic asset boom that inflated the S&P 500 by over 300%. Today the U.S. stock market is as overpriced relative to its fundamentals as it was the  in 1929, right before the stock market crash and Great Depression.

In addition to stocks and mutual funds, housing is another major component of U.S. household wealth. According to the Case-Shiller Housing Price Index, U.S. housing prices now exceed their housing bubble peak and are up 50% since their low point in 2012. The U.S. housing bubble inflated in large part due to (what were then) record low mortgage rates; Today’s much-lower mortgage rates have created another unsustainable, artificial housing boom.

From January 2008 to January 2018, nominal U.S. GDP grew 37%, while Federal Debt grew by $11.6 trillion or 122%, while corporate debt grew by $2.8 trillion or 82%. The chart below clearly shows the corporate debt bubble looks just like it did before the market collapse of 1999-2000 and 2008.

How The Household Wealth Bubble Will End

The current economic bubble will end the way that the last several asset and wealth bubbles did: As hedge fund manager Jeff Gundlach put it, the Fed will keep hiking interest rates until “something breaks.” In the last economic crisis, it was the subprime mortgage industry that broke first, and in this cycle, there is a strong chance that corporate bonds will break first, which would then topple the U.S. stock market. That’s why there’s never been a better time to reposition your retirement out of the risky stock market into the only long-standing currency that cannot be debased by governments and is immune to equity market declines, global economic crisis- Gold & Silver. And today these time-tested inflated fighters are at historic lows…

Gold and silver prices, adjusted for inflation, are now cheaper than when they became legal to own again in the United States.

This inflation adjustment is not based on the government’s Consumer Price Index (CPI), because it has changed the methodology for calculating inflation at least 14 times since 1980. And those changes are always geared to reduce inflation readings.

How much confidence can you put in an inflation measure that has been modified, on average, every 2.7 years and in every instance was changed to yield a formal inflation number lower than the previous formula? At a minimum, the measure would be questionable; at a maximum, it demonstrates clear statistical bias, manipulation, and inaccuracy. Thus, adjusting precious metals prices via the CPI can’t give us a true measure of their values.

Instead, use the same inflation methodology that was used in 1980. In other words, the formula that existed before government officials started changing it.

The difference is enormous: the CPI reading in July was 2.9%, for example, but the original formula for the CPI was 10.75%. Which do you think is more accurate? The average gas price alone has risen 17% since 2017 — but the core CPI reading excludes food and energy costs now. Have college and healthcare costs really risen less than 3%? No way.

Gold: Now Cheaper Than in 1970!

The inflation-adjusted gold price using the 1980 calculation shows.

That little downturn on the far right pushed the inflation-adjusted gold price to a new modern-day low. In other words, gold is now selling below its 1970 price, when it was still illegal to own in the US.

Further, you’ll see that based on July 2018 data, gold reached the equivalent of $12,687 per ounce at its 1980 peak.

This combination of data shows not only how dramatically undervalued gold currently is, but just how high it could climb if it matched the inflation-adjusted ascent of the 1970s bull market. Indeed, gold would have to climb about 960% from current levels!

Silver: Cheaper than Gold, Explosive Potential!