TWENTIETH CENTURY GOLD RUSH ON THE HORIZON

The start of the 49er gold rush was caused by accident- it was totally unexpected. It happened when James W. Marshall stumbled upon some gold nuggets in the waterwheel at Sutter’s mill in the year of 1848. Word soon got out that there was gold in ” them thar hills.” The gold rush had started.

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Today, the economies of the world are fed not by gold but by the ubiquitous paper of reserve banks. As in the Weimar Republic the day of reckoning is one day closer to a catastrophic disaster.

Gold Past $10,000 Gold in 2019 finally burst through the $1,350 ceiling that had been established during the crash of 2013. Gold’s current price of $1,550 may be materially higher than where it has traded over the past six years, and it has returned most gold miners to profitability, but it is nothing compared to where the price of gold is headed. For the benefit of new readers and to jog the memories of long-time followers, let us work through the admittedly circuitous but conceptually simple reasoning behind the reason why the dollar price of gold is heading well above $10,000 per ounce. The first step is to dispense with the quantity theory of money that underlies modern economics. This theory stretches back to the sixteenth century but was given its modern theoretical framework by Irving Fisher, who penned the famous equation that lies at the heart of monetarism: M • V = P • T, where M is the total amount of money in circulation on average, V the average frequency with which a unit of money is spent (its “velocity”), P the price level, and T the number of transactions, or volume of trade. “In short,” wrote Fisher, the quantity theory asserts that (provided velocity of circulation and volume of trade are unchanged) if we increase the number of dollars, whether by renaming coins, or by debasing coins, or by increasing coinage, or by any other means, prices will be increased in the same proportion. It is the number, and not the weight, that is essential. This fact needs great emphasis.* A cursory analysis of Fisher’s equation reveals it to be a tautology: the quantity of money transactions equals the quantity of sales in monetary terms, which is true by definition and thus makes the equation utterly useless.

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Myrmikan Research January 14, 2020 Daniel Oliver Myrmikan Capital, LLC doliver@myrmikan.com (646) 797-3134

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