This document summarizes a presentation given by Dr. David Evans at a gold symposium in Sydney in October 2012. It discusses how the world monetary system has transitioned from being backed by gold to being based on fiat currencies since 1971. It argues that high debt levels globally mean inflation will likely continue as governments try to reduce their debt burdens through currency debasement. It predicts gold will rise substantially in the coming years as an inflation hedge and alternative currency not subject to debasement like fiat currencies.

1. Gold Begins to Shine Again
Dr David Evans
Gold Symposium, Sydney
October 2012

3.  Novel money system started
in 1971 when Nixon “closed
the gold window”, changing
from gold base to paper base.
 Historically, paper currencies
usually die after 25 – 50 years.
 It’s now 41 years since 1971.
 Stagflation in 1970s, reset in
1980 by 20% interest rates.

4.  Amount of money ≈ Debt (gov’t + private)
 Size of economy ≈ GDP
 This is the financial story of our times…

5. Debt-to-GDP Ratio
Total US Credit Market Debt ("Bank Money") as a % of GDP
400%
Q1 2009
1933 depression, 298% 385%
350% (debt down 20% but GDP down 46% from crash)
300%
1987 crash
1929 crash 230%
250% 196%
200%
Normally
150% 130 - 170%
100% Restart
1982
Federal Reserve created
1913 Base money: gold -> paper
50% 1971 20% interest rates
1980
0%
1880 1900 1920 1940 1960 1980 2000
Sources: Federal Reserve - Z1, US Census Bureau - Historical Statistics of the United States,
Colonial Times to 1970. Data 1871 to end of Q1 2012. Data quality excellent from 1945.

6.  World ran low on borrowing capacity:
1. Not enough income to service more debt
▪ Debt ≈ 400% of GDP
▪ Interest rate ≈ 4%
▪ Interest payments ≈ 16% of GDP
2. World running low on unencumbered
collateral.
 Money manufacture in the private sector
stalled in 2008 Global Financial Crisis.

7. 2008 – 2011 Now
 Governments took up  Most governments cannot
slack of money borrow much more.
manufacture in 2008:  Realization: private sector
 Borrowing is debt-saturated, no return
 Some printing to pre-2008 “normal”.
(“quantitative easing”)  Only option left for
 Lowered interest rates. manufacturing money is…
government “printing”.
? ?

8.  1930’s, but worse – debt-to-GDP ratio
much higher, global.
 During the 25 years of bubble, extra
money (= debt) increased GDP. Like a
credit card spree!
 To return the debt-to-GDP ratio to Debt-to-GDP Ratio
normal, maybe a 15 – 25% fall in GDP.
Total US Credit Market Debt ("Bank Money") as a % of GDP
400%
350%
300%
250%
 Double depression! 200%
150%
100%
Normally
130 - 170%
Politically unacceptable!!
50%
 0%
1880 1900 1920 1940 1960 1980 2000
You spent it, now
you gotta pay!

9.  Last year’s debt has to be repaid with interest,
so every year the money supply must increase
or there will be widespread business and bank
failures (a la 1930).
 World at a fork: or
Print, Don’t print,
inflate deflate

10. Basic democratic calculus:
 Lenders: Few
 Borrowers: Many (vote, might riot).
 Powerful business interests: Need to repay their debts.
Portugal, Oct 2012 Greece, June 2012
Spain, Sep 2012
The Keynesian fog will be used to excuse this choice,
to “reduce the people’s debt burden”.

11.  Political system won’t allow Bernanke
Quantitative
failures of big banks and easing
corporations. TBTF. (2008)
 Bernanke won’t allow 1930’s
deflation.
 Establishment economists already
suggesting running mild inflation
(6%) for a few years.
Rogoff (D) Mankiw (R)
 Governments everywhere
spending more than tax receipts.

12.  IMF concluded that austerity does
not work. Had previously
encouraged austerity in Europe.
(Oct. 2012) Krugman (leading Keynesian)
Crows “times like this are different”
 European integrationists winning
in struggle with Germany’s central
bank over printing: Draghi
promises “whatever it takes” and
announces “Outright Monetary Draghi (ECB Head)
Transactions” (July, Sept 2012) Outright Monetary Transactions

13.  Without political interference, the current debt
bubble would collapse in a massive deflation
(like the 1930s).
 Governments and banks will interfere to prevent
this, by manufacturing more money.
Increasingly, they are deliberately causing
inflation to reduce the real value of debt.
 Investors mainly fearful of deflation  inflation
plays are cheap now.

14.  Money is a promise – of similar
purchasing power in the future.
 Work is motivated by those promises.
 Too much money = Too many promises
 Promises cannot be kept: not all debts
can be repaid in dollars near current
value.
 Political system, not usual economic rules, will determine the
losers.
 Major political issue: How fast to break the promises?
 1 - 2 years: deflationary, austerity, better long term
 1 -2 decades: inflationary, printing, nicer short term.

15. (and Silver)

16.  Gold is a currency.
 It is the main non-government
currency, evolved in the
marketplace over 5,000 years.
 Gold was the world’s base
currency until 1971.
 Gold is still a reliable store of
purchasing power.
 Gold is a superior form of cash
that debases much more slowly
than paper currency.

17.  Gold is not used in jewelry because
it is shiny and yellow – there are
lots of cheaper alternatives.
 Jewelry is made of gold because gold
is valuable.
 Gold is valuable because it is money.
 Gold is not a commodity, like wheat
or iron, because it does not get used
up.
 Gold is not a productive
investment, something that
produces goods and services (like
farms or factories), because it is just
a medium of exchange (like cash).

18.  No one can print it.
 No one can make more without great effort.
vs
We wouldn’t be in the current debt mess if our money system was still based on gold!
 You have to earn it before you can spend it.
 You either have it or you don’t.

19.  The long-term value of currencies is mainly
determined by the relative rate of
manufacture (debasement):
 Aboveground gold: 1.7% pa
 Paper currencies: 5% - 25% pa since 1982
~15%
p.a.
1.7% p.a.

20.  The reasons for gold to go up are intensifying,
not going away.
 Big picture: Gold goes up forever against
paper currencies, at a rate roughly equal to
the difference in their rates of debasement
(on average).
 $1 million per ounce is only a matter of time.
 Gold price fell for 20 years to 2001  some
catch up in store.

21. That’s an amazingly straight line for any market!
Graph from Nick Laird at Sharelynx.com

22.  Gold rose 20-fold 1968 – 1980, at 20% p.a.
 20% interest rates in 1980 stopped money
manufacture and inflation of the 1970’s.
Paul Volcker
Fed Chairman 1979
Volcker's Fed elicited the strongest political attacks and most widespread
protests in the history of the Federal Reserve (Wikipedia).

23.  Gold is a currency.
 Most of the time, gold is a weak investment.
 Gold becomes a good investment only when
the other currencies are failing, inflating,
profligate, debasing, corrupt, ….
Timing is everything

25.  Assumes central banks stay
in control. This is their best
case.
 Main risks:
1. Deflation
2. Hyperinflation
3. Banking crisis Increasingly narrow path between the disasters of
deflation and hyperinflation
4. Physical gold market blows up
5. Major war.

26.  Debt strangles the world economy.
Moribund industries and zombie
banks, mired in debt.
 Society’s “pie” growing slower now,
some groups lose  social tensions
 Governments keep real interest
rates low.
 High but tolerable inflation, a more
intense version of the 1970s.

27. Debt-to-GDP Ratio
Total US Credit Market Debt ("Bank Money") as a % of GDP
Reversion to the mean debt level
400%
 350%
300%
The Age of Deleveraging, 2009 - 2028 ?
 350% of GDP  150%
250%
200%
Normally
150% 130 - 170%
 Reduction to 42% of current value 100%
50%
0%
1880 1900 1920 1940 1960 1980 2000 2020
 How much inflation is required?
 Start 2014.
 12% inflation (modern CPI : 5-8%).
 Interest rates of 6%
(so real interest rate is negative 6%)
 14 years reduces original debts to 42% of
original real value  2028

28.  Sign that inflation will end?
 Governments must halt the money
manufacture:
 Raise interest rates sharply, to 15 - 20%.
 Cut spending severely, run surpluses.

29.  Gold price will rise until interest rates rise rapidly
to 15-20%, maybe around 2028.
 Rate of gold price rise might be:
 11%+ pa — difference in debasement rates
 5% pa — uncertainty over future of paper money
 5%- pa — catch up for 20 years of falling gold prices
 Total: 21% pa
 Last 11 years: 21% pa
 1970’s: 20% pa

30.  Nominal prices in USD per ounce:
 1980: $ 850 $3,300 in today’s money
 2001: $ 260 Start growth of 21% p.a.
 2012: $ 1,900
 2015: $ 3,500
 2020: $ 10,000 $4,600 in today’s money
 2028: $ 50,000 $8,400 in today’s money

31.  Gold price suffered in the
banking crisis of 2008 because
it was a tier 3 asset in the Basel
formula.
 Gold only counted 50%
towards their capital adequacy,
so banks sold it to raise cash.
 Upcoming rule changes will
likely see gold soon become a
tier 1 asset, counting 100%.

32.  Many believe that the western central banks have been
putting downward pressure on the gold price since 1995, to:
1. Reduce the perception of inflation.
2. Reduce competition for their paper money.
 However, in a future with
substantial money printing,
central banks might encourage
the gold price to rise.
 By selling their gold to the
public, they soak up some of the
newly printed money, reducing
actual inflation.
seekingalpha.com

34.  Investment success:
 60%: right sector at the right time
 40%: choices within sector.
 Main gold investments:
 Gold bullion in your possession
 Gold bullion held by others
Risk
▪ Perth Mint, Guardian Vaults, etc.
and
▪ ETFs Leverage
▪ Not banks (paper money competes with gold)
 Gold mining and exploration companies
 Gold futures and options.

35.  Security:  Drawbacks:
 Secure, convenient ownership  Company risks
of companies via CHESS share  Mining risks
system (ASX only).  Country risks
 Companies own mining rights
 Mining stocks do not
to gold in the ground. necessarily track the gold
price.
 Leverage:
 Gold in the ground typically
$20 - $200 per ounce.
 Can buy more ounces more
profit as gold price rises.

36.  Ratio of gold stock prices to gold price is at a 30 year low:
 Why?
 Most investors afraid of 1930’s deflation, not inflation.
 “Gold in a bubble” story widely believed.

37.  Started GoldNerds, to
choose gold stocks.
 Compare all companies in
sector, peer pricing.
 No recommendations.
 GoldNerds has the www.goldnerds.com
information required to
make informed decisions.

38.  GoldNerds sells sophisticated
spreadsheets for investors,
comparing all 250 ASX gold
stocks.
 Microsoft Excel spreadsheets
(Windows only).
 Subscription
 New spreadsheet every two
weeks.

39. Company EV per Future Ongoing TCO Price Change
Resource Cash Cost Capex Plus from 1 Jul 2012
oz $/oz $/oz $/oz %
$/oz
Tribune Resources -126 635 272 752 13
Newcrest Mining 160 585 204 1,018 25
Regis Resources 313 544 68 1,047 38
St Barbara 75 850 283 1,253 34
Silver Lake Resources 187 684 399 1,328 38
Northern Star Resources 337 650 308 1,484 65
Apex Minerals 14 1,390 190 1,602 -31
Focus Minerals 47 1,238 380 1,690 -5
Ramelius Resources 42 887 833 1,781 -17
Saracen Minerals 68 1,105 640 1,842 -8
Navigator Resources 28 1,718 546 2,306 -80

40.  Price dropped compared to peers for no
apparent reason in April 2011. Later confirmed as
a fund selling out. Recovered by Aug 2011.

41.  Took over Allied Gold late June. Price
dropped 40%. Cost of gold in the ground very
low compared to peers, overdone?

43.  Ever noticed that there
are a lot more regulations
around than there were,
say, 20 years ago?
 So someone is doing more
regulating.
 Government is gradually
getting bigger, it is
making more decisions for
us, and we have less
freedom.

44.  The biggest political
issue of our age.
 Echoes of the old
communism vs
capitalism fight,
morphing into big vs
bureaucracy vs the
marketplace.
 This is having a major
effect on the
investment landscape.

45.  Prefer big government.  Wordsmiths. An intellectual
 University-educated. upper class of word users,
 Prefer government who regulate and
(politics and coercion) to pontificate rather than
the marketplace (voluntary produce real stuff.
transactions).
 Arguably a class of parasites
 Prefer to pay themselves enriching themselves at the
what they think they are expense of producers.
worth, out of tax revenues.
 The rest of us are under  Core belief: they are
the discipline of the superior to the rest of us
marketplace.  Smarter
 More moral (e.g. less racist).
 Dislike capitalism. Justifies less democracy, more
decisions by them.

46.  Bigger government
 more business and social welfare
 more dependency on government.
 In Europe, a bureaucratic super-state is
replacing national democratic
governments:
 Most government decisions made in
Brussels bureaucracy.
 Lisbon treaty: referendums overridden.
 Greece and Italy ruled by appointees.
 MSM sympathetic:
 Most journalists identify with the
regulating class.
 Regulating class threatens media with
more regulation.

47.  Keynes was a socialist in the
1930s whose economic theories
were used to justify
 Artificially low interest rates
 Large-scale government
intervention in the economy
 Distribution of newly-printed
money by government.
 Keynes’ ideas were considered crackpot before the 1930s:
 Problem of high debt/money levels solved by more of same??
 Counterfeiting by government is the solution?? Really?
 Distorts economy with appearance, but not reality, of cheap capital.
 Transfers value from savers to recipients of government largesse.
 Keynesianism is poor in the long run.

48. Why is this theory so
important to the regulating
class?
1. To regulate CO2
emissions is to control
energy use throughout
the economy.
2. To regulate CO2
worldwide requires
being able to regulate
every economy.
Axel Rouvin

49.  All the world’s leaders met, to  Power would be parlayed up
sign the Copenhagen Treaty. into strong global bureaucracy
 China refused, citing affecting more than
uncertainties in the science. emissions.
 On the Internet.  Media almost entirely silent
 181 pages of dense about the treaty and loss of
bureaucratic language. national sovereignty.
 Narrowly-averted silent coup
 A UN bureaucracy would by the regulating class.
regulate CO2 worldwide.
 Over-ride national government  Climate “science” is clearly
as required. flawed, just an excuse.
 It could tax and fine any
signatory government.
 No democracy or elections.

50. Macroeconomics and Climate Science:
 Governments (and their allies the
banks)
 Fund university departments.
 Are the main employer and ultimate
provider of lucrative consulting jobs.
 Only hire like minded people. "We are all Keynesians
now“, R. Nixon 1971
 Cannot get a PhD without believing
and being trained in the theory.
SkepticalScience.com
 All certified “experts” believe in the
theory.

51.  Artificially low and near-zero interest
rates will hurt savers and retirees for
years.
 Excuse to promote their agenda:
 More bureaucrats running more of the
economy
 Higher taxation
 Less democracy, increasingly global
bureaucracy.
Lower growth, lower investment returns
 Ultimate Keynesian solution to any
crisis: PRINT.

52.  If you oppose the regulating class, you get called:
 “extremist”
 “nut”
 “conspiracy theorist”
 every version of “stupid” and “ignorant”
 The names mean nothing, except
they want to shut you up.
 If they’re not calling you names,
you’re not over the target.

53.  Scares most people into
submission.
 Name-calling only works
because the media is on
their side, framing the
public discussion.
 They don’t debate, just
denigrate their opponents.
 They always get last word.

54.  Western public was 20% climate-
skeptical in 2008, now 50%.
 Internet trumps the mainstream
media – it just takes a while.
 Suppressed data (not shown by
MSM) gets through.
 Precedent: Printing press broke
church’s monopoly on “truth”.

55. Chairman of the UN’s IPCC,
Rajendra Pachauri
Head of the IMF,
Christine Lagarde
The President of the
The regulating class don’t like:
European Council,
Herman Van Rompuy
 The private sector
 People who make real stuff
 Capitalism.
Freedom from
the demands of a  Bleak mainstream investing
new hostile ruling class. outlook.
 Bet against government
 Buy gold!