Gold has reached a record high price of over $4,000 an ounce. So, what does that mean for your dollar? Financial expert Carol Roth joins Glenn to explain why this news is so concerning and why many big investors have started to buy gold.
Transcript
Below is a rush transcript that may contain errors
GLENN: Well, Carol Roth, welcome to the program. How are you?
CAROL: I'm doing great, Glenn! I'm actually celebrating my 26th wedding anniversary today, so it's a blessed day.
GLENN: Oh, my gosh. Congratulations! Congratulations! It's weird. I'm coming up on my 26th on January.
CAROL: Oh, fabulous. Fabulous. It's a good amount of time to be married, yes.
GLENN: It is. It is. So, Carol. Let's talk about the price of gold hitting --
CAROL: It's over 4,000.
GLENN: Which is nuts. And I don't think people really understand. I don't think the average -- this is my guess, and I want you to correct me. I don't think the average person is buying gold. I think this gold-buying is happening from sovereign funds and central banks, mainly. Also, Asian markets. I don't think Americans really understand what $4,000 an ounce means. Can you explain it?
CAROL: Absolutely. I think the world both, investors and central banks are catching up to the things that you and I have been talking about for years. So, you know, we're ahead. We warned everyone. And now this is a little bit of catch-up. Interestingly, you know, as you noted, the average American is very behind in terms of what gold means.
When you look at Chinese households. When you look at Indian household. There are estimates that each one of those country's households owns up to 30,000 tons of gold at this point. Which to put that in context, the US government owns 8,133 times.
GLENN: So the Indian households, all of them combined, 27,000 tons.
CAROL: Right.
GLENN: What we say we have, is he 8100. Wow!
CAROL: So the households in China and India are really ahead of the curve. When you look at data for the US, it's a little bit hard to get good data. But from what I've seen, the estimates are only about ten to 11 percent of US households at all, have exposure to gold.
Now, I know that your audience is very sophisticated and is ahead of the curve. And I would imagine blows through that number. But just shows how sort of unprepared US households are in general.
GLENN: When you're looking at Indian and Chinese households that own gold. Does that include all the gold jewelry?
CAROL: Yes. Yes. That's actually, particularly in India. One of their preferred ways of procuring gold. Yeah.
GLENN: Okay. So gold has -- gold has shot up over $4,000 in record times. I mean, breathtaking time. What is causing that?
CAROL: Okay. So there are a confluence of factors, and I think the two most important factors, which, of course, are linked. Are what Wall Street is now calling the debt debasement trade. Which they're just caught up. And gave it a cute name.
And changing the global financial order. And they're very much linked.
GLENN: Yeah. Tell me, what is it? The debt debasement? What is that?
CAROL: They're doing the debt debasement trade, which is just basically what you and I have been talking about, which is our unsustainable fiscal position.
GLENN: All right.
CAROL: And what all of the money printing that we've seen over the past 17 years, what that has done to our purchasing power, and how that's going to catch up to us.
So as a reminder, our debt to GDP is at emerging market crisis levels. We were at 120 police levels of GDP.
We're running deficits equivalent to a war-time level. Or recession level, while we still have growth.
Which is crazy. We have interesting interest rate -- or interest payments that are outpacing defense spending.
So everyone is now finally catching on to the fact that this is an unsustainable financial position.
And it is going to be very difficult to get out of. Without there being some sort of additional debasement of our currency. Which is a fancy way of saying, a diminishment of your purchasing power.
What's really crazy. There's a chart that's been going around, and they did kind of a comparison of different asset classes. Price in US dollars, price in gold.
So if I look from the end of September 2018, out seven years, and you look at the top 100 NASDAQ nonfinancial companies. It's called the NDX. In US dollar terms, that is up 236 percent. So you think you're super rich, right?
But in gold terms, solid money that doesn't -- you know, that doesn't have its value debased. It's only up 4.7 percent.
GLENN: Oh, my gosh.
CAROL: Yeah. Of course. The S&P 500 up 133 percent over that period in dollar terms. It's down 27.6 percent in gold terms.
And what's called the Case-Shiller Home Price Index, which is the value of homes, the way that's measured. Dollar terms, 60 percent. Oh, houses. So expensive In gold terms, it's down 50 percent.
In fact, right now, it takes less gold in terms of ounces, to buy the median single-family house, than it has in decades and decades and decades.
So it goes to show, that even though we see these dollars. They're buying less and less. And now, you and I were talking about this forever.
But now Wall Street is catching on. Oh, that's not a great thing. And so in terms of preserving the hard-earned capital, we need something that is that -- that hedge. That mutual hedge that is going to retain its value.
And that's why more investors, institutional investors. Funny enough, a lot of millennials, more than anyone starting to really get in to gold.
GLENN: You know why? Because millennials have not been trained their whole life. Trust the system!
CAROL: Yes.
GLENN: And they see it clearly. And they look at it, and they're like, well, this doesn't make any sense at all. And they're going to spend this.
And they will wreck the dollar and everything else. They just see it without being trained over and over and over again. Like, trust the system. They don't trust the system.
And once you realize, the system is rigged in a million different ways. And the system is not telling you the truth.
I mean, that is amazing. When you look at the stock market. And you say, it's actually down, when you compare it in US dollars. To gold!
What's happening -- let me explain this to the audience. What all that means is: Gold is only going up in dollars. It's staying -- it's staying stable. But it's costing you more because of inflation. The dollars are buying less! So it looks like you're paying more, but you're really not. It looks like the stock market is going up, but it's really not! It's what it costs to get in with dollars. If you're going in with gold. You'll actually see that if it was all done in gold, the stock market is down. The price of housing is town.
It's the dollar. It takes more dollars to buy, than it does with gold, which holds its value.
That is -- if people could understand that one thing, that changes all the conversations of, the government has to do something to make housing more affordable. No, they don't. They have to stabilize the dollar. They have to stop spending so much money.
CAROL: Yeah, I mean, if you think of the three definitions of money, it is a medium of exchange. You know, how you helped to exchange goods.
It's a unit of account, which we say, things are priced in dollars, and it's supposed to be a store value. The unit of account, that you just talked about. My friend Steve Forbes has a great analogy, and he talks about other measurements.
You know, imagine that your clock, you know, one day, at 12 o'clock, you know, means midnight. And another day, 3 o'clock means midnight. Or 6 inches to measure a curtain one day. And then the same measurement is like a foot, a different day.
You can't have -- a consistent measurement if the unit of account continues to change. And that's what we've been seeing here with the dollar. And unfortunately, it has not been to our favor.
Which means, that when you work really hard to earn something and it's valued in a dollar, that over time, that -- that work that you put out, your productivity is worth less and less.
And so what gold is meant to do. It's meant to be Capitol preservation. It's not a risk asset. It's not meant to take on risk. And maybe go up a ton. And maybe go down a ton. It's really meant to be a counterbalance to what you have earned. So that you can preserve your purchasing power.
GLENN: You know, I've been saying this for a long time. That you put your money. And I have money in the stock market. You put the money in the stock market.
If things really go awry, go ahead. You're going to cash out for an awful lot of money. But those dollars. It will be paid back to you in dollars.
Those dollars will be worth less, even though there's more of them stacked up, than that ounce of gold, or, you know, that 10 ounces of gold, or whatever you had!
The stock market is paid in dollars. And so as the inflation goes up.
But gold keeps its value!
Keeps its value and hold it steady.
So, yeah. You will be paying more in dollars if you try to sell your gold. But that will continue to increase while stock markets will go down. Am I right?
CAROL: It's a counterbalance. So if things were to shift, and for some reason, you know, things were to change with the dollars, which we would need a lot of different catalysts. Then your gold goes down. It's a counterbalance, which is why it's important to have that diversification in your portfolio. And to have the gold hedge.
What's interesting, Glenn. Just the history, we're talking about millennials.
You know, they went through the great recession. Financial crisis.
They're kind of keyed into this. But if you think about when we came out of the '70s with this crazy inflation. We came out of the gold standard. It used to be very commonplace for a financial adviser to sit down and say, okay.
We've been through this. And so you should be putting, you know, five to 10 percent of your portfolio in gold. As the stock market took off in dollars. And became this big thing.
And they started seeking fees. That went away. Financial advisers, who don't get paid sometimes at all, when you allocate to gold. Stop recommending it.
GLENN: Yep.
CAROL: And now we're seeing a shift back, now we're seeing, you know, oh, yes. You should have some. Some of the big names out there saying, even more.
GLENN: Ray Dalio just came out and said, 15 percent.
CAROL: Yes, we've seen big names like that, anywhere from ten to 20.
And when they surveyed high net worth investors, which are $250,000 in assets or more, they're averaging right now, 21 percent of their holdings in gold.
So it's a very big flip in recent years, on how this is being viewed bit people who have accumulated those dollars and are worried about them.
GLENN: Okay. So let me just summarize here before we move on. On to some other questions.
That is exactly what my grandfather who lived through the great depression said. What are the people with big large amounts of money doing?
I want to do that. And if I did do that. I would be better off in the great depression.
You just heard it, 20 percent or more, right?
From big dollars.
They're investing in gold. 20 percent!
You should -- you should have some!
CAROL: And it's interesting. Some of the portfolios we're seeing is coming from not only the equity peace, but from the fixed-income peace, which is pretty interesting too.
GLENN: Amazing.
