Double-digit inflation is a non-linear development. What I mean by that is, inflation doesnt go simply from two percent, three percent, four, five, six. What happens is its really hard to get it from two to three, which is ultimately what the fed wants.Its proving extremely difficult just to get up to two. Personal consumption expenditures (PCE) is the core price deflator, which is what the fed looks at. Currently, it is at about 1.6, 1.7 percent, but its stuck there. Its not going anywhere. The fed continues to try everything possible to get it to two with hopes to hit three. Where the problem arises is once you get to three, the next stop isnt four, its eight, and then it goes to ten. In other words, there is a big jump.The reason is that its not purely a function of monetary policy, its a partial function of monetary policy.Its also a partial function of behavioral psychology. Its very difficult to get people to change their expectations, but if you do, its hard to get them to change back again.Inflation can really spin out of control very quickly. So is double-digit inflation rate within the next five years in the future' Its possible. Though I am not forecasting it. If it happens, it would happen very quickly. We would see a struggle from two to three, and then jump to six, and then jump to nine or ten. This is another reason why having a gold allocation now is of value. Because if and when these types of development begin happening, gold will be inaccessible.To this point, I am often approached on, How can you say gold prices will rise to $10,000 without knowing developments in the world economy, or even what actions will be taken by the federal reserve'Here Is Where The $10,000 Per Ounce Number Comes From.Its not made up. I dont throw it out there to get headlines, et cetera. Its the implied non-deflationary price of gold. Everyone says you cant have a gold standard, because theres not enough gold. Theres always enough gold, you just have to get the price right.That was the mistake made by Churchill in 1925. The world is not going to repeat that mistake. Im not saying that we will have a gold standard. Im saying if you have anything like a gold standard, it will be critical to get the price right. To this regard, Paul Volcker said the same thing.The analytical question is, you can have a gold standard if you get the price right; what is the non-deflationary price' What price would gold have to be in order to support global trade and commerce, and bank balance sheets, without reducing the money supply' The answer is, $10,000 an ounce.The math is where I use M1, based on my judgment. You can pick another measure if you choose (there are different measures of money supply). I use 40 percent backing. A lot of people dont agree with that. The Austrians say its got to be 100 percent.Historically, its been as low as 20 percent, so 40 percent is my number. If you take the global M1 of the major economies, times 40 percent, and divide that by the amount of official gold in the world, the answer is approximately $10,000 an ounce.Now, if you go to 100 percent, youre going to get, using M1, youre going to get $25,000 an ounce. If you use M2 at 100 percent, youre going to get $50,000 an ounce. If you use 20 percent backing with M1, youre going to get $5,000 an ounce. All those numbers are going to be different based on the inputs, but just to state my inputs, Im using global major economy M1, 40 percent backing, and official gold supply of about 35,000 tons.Change the input, youll change the output, but theres no mystery. Its not a made-up number. The math is eighth grade math, its not calculus.Thats where I get the $10,000 figure. It is also worth noting that you dont have to have a gold standard, but if you do, this will be the price.The now impending question is, are we going to have a gold standard' Thats a function of collapse of confidence in central bank money, which is already being seen. Its happened three times before, in 1914, 1939 and 1971. Let us not forget that in 1977, the United States issued treasury bonds denominated in Swiss francs, because no other country wanted dollars. The United States treasury then borrowed in Swiss francs, because people didnt want dollars, at least at an interest rate that the treasury was willing to pay.Thats how bad things were, and this type of crisis happens every 30 or 40 years. Again, we can look to history and see what happened in 1998. Wall Street bailed out a hedge fund to save the world. What happened in 2008' The central banks bailed out Wall Street to save the world. Whats going to happen in 2018'Each bailout gets bigger than the one before. Yes, they do the bailouts, building upon truncation. Yes, governments dont go down without a fight. Policy-makers will truncate a global financial crisis, but then take the analysis a step further. How do you do it' Central bank bullets.The Central Banks Are Out Of Bullets.The Governor of the Bank of England, Mark Carney, is talking about cutting interest rates in the U.K. He spent two years teasing the markets about raising rates, and now hes going to cut them. That shows you that theres something bigger than a pill. Theres something bigger than the central banks going on here that you have to analyze.If the next crisis is bigger than the last one, which I expect, and the central banks are tapped out, where is the money coming from' How will you re-liquify the world' The answer is, the IMF is going to print a massive amount of dollars of SDRs. Is that inflationary' Of course it is.If you flood the market in dollars of SDRs, one of two things is going to happen. Either thats going to work, and will be highly inflationary, which is going to take gold to $10,000 an ounce, or its not going to work, in which case youre going to have to go back to a gold standard, in which case its going to be $10,000 an ounce.You can have multiple paths, and timing has to be watched, but this number is very well grounded analytically.SEE ALSO:The 17 countries with the biggest piles of goldJoin the conversation about this storyNOW WATCH: EX-UNDERCOVER DEA AGENT: What I did when drug dealers asked me to try the product
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