Gold in 2008 Will See a Gear Shift in its Evolution to Higher Prices
Source: Julian D.W. Phillips, Gold Forecaster - Global Watch (1/4/08)
...the gold price will continue to be a prime beneficiary of investment as investors realize that gold cannot suffer from these problems as it remains unprintable.
As gold is now commonly being spoken of at $1,000 as it goes above $850 and as part of our forecasts for 2008, it is appropriate to continue to give you the next step in the evolution of gold that began at the end of the last century, after having been virtually discarded for the last twenty years of the last century.
With the crack in confidence in the global monetary system becoming clearly visible in 2007, as the sub-prime crisis evolved into an interbank credit crisis towards the end of the 2007, the stage was set for more confidence degeneration in 2008. When globally respected bank’s become fearful of established bank’s ability to repay short-term loans, despite the reality that Central Banks are lenders of last resort, something fundamental has broken down. Even when Central banks opened the flood-gates of credit supply to banks, not once but several times the problem did not go away. Add to that that the initial precipitant of that crisis has yet to reach full impact and an economic recession seems to be on the way [unless the floodgates of new money can stem the dive down to there] then you know crisis management has moved from short-term to medium-term. These problems are systemic not open to a quick fix nor even an obvious long-term solution so have to get worse.
A look at the impact of the tsunami of new money tells you that inflation is being fostered worldwide, as the target of such money isn’t being hit, but held in the hands of those institutions that don’t have a dire need for it, sending good markets even higher. To get investments right in 2008 we have to ignore the usual “overview” approach, as this is now completely inadequate. Now we have to separate ailing markets from healthy ones, within all economies. And we are seeing bond markets roaring next to steeply declining other fixed interest markets, manufacturing sectors suffering as emerging nation countries manufacturing flourishing.
Complicate this with the steady, unstoppable flow of wealth to the healthy East from the West and to massive sovereign wealth funds looking for markets to invest in and you are seeing a global moves from poor markets to vibrant ones in emerging nations and commodities, including gold and silver.
In these markets the massive increases in liquidity that we are seeing as a result of the credit crunches across the world [except in the East] is and will lead to a steady injection of inflation that will, we believe become self generating. The very nature of the liquidity demand is similar to that seen after the first World War in Europe [Germany, France, etc]. The key feature of this was that the demand for more liquidity could not be satisfied as prices rose in healthy markets where demand remained strong and many businesses crashed because the injections of liquidity just could not lift them out of danger so their important asset prices [relative to their survival] could not rise and went lower in the face of rampant inflation.
The underlying reason why this is likely now is that Central Banks to the last one will inflate rather than see the dark hole of a recession, then depression, suck down the monetary system and following hard on its heels, the government of the day. Whatever the success rate of the many global banks in combating the problems that arise, you can be sure that each one will target either inflation as the main danger facing them [if they have a healthy national economy] or drop interest rates and suffer inflation to protect what growth they have. This alone will engender a global set of extreme market conditions, both good and bad.
As we are seeing now the gold price will continue to be a prime beneficiary of investment as investors realize that gold cannot suffer from these problems as it remains unprintable.