Long term indicators show gold is undervalued under these circumstances and can easily double in price over the coming years.

The past decades have been characterized by an elevated trust in credit instruments that blew the global financial system to colossal proportions. Now tensions between East and West, debt saturation and inflation are chipping away this trust, the balance between financial instruments with counterparty risk (credit) and without counterparty risk (gold) will go through a process of adjustment in favor of the gold price.

The Theory of Money and Exter's Inverse Pyramid

"Money is gold, and nothing else."

J.P. Morgan testimony before Congress 1912 (page 5)

Philosophically speaking all moneys are backed by trust. Because money is a social agreement it can be whatever we think it is—tobacco, salt, paper slips, silver, book entries, and so forth. Money functions as long as it is accepted by market participants.

But not all moneys are equal. Some moneys—for example tobacco and salt—are inconvenient in the modern age. Other moneys are issued by banks and therefor carry counterparty risk. Since the late 19th century gold is "officially" the only form of money that is universally accepted, has no counterparty risk, and therefore underpins the global financial system.

In previous articles we talked about Perry Mehrling's hierarchy of money, Exter's inverse pyramid, and the order in which the International Monetary Fund (IMF) lists financial assets. All three have in common that they pose gold as the ultimate money, followed by national currencies, debt securities, equity, and then derivatives. This sequence of financial assets reflects if assets are more money or credit like.

Below is a visualization of Exter's inverse pyramid, whereby gold sits at the bottom, ultimately "backing" all forms of credit resting on top of it and providing indispensable trust to the financial system.