Gold Price Prediction
Source: James West, Midas Letter (10/6/09)
The breaking of the old record high price for gold today is no surprise to long-time critics of American and thus global financial policy. Regardless of how much spin you can generate from a compromised media, the laws of supply and demand reassert themselves inevitably. . .
Not likely. When anything, be it stock, bond, currency or commodity, reaches a new high, the impetus for selling into strength and taking profit off the table are enhanced dramatically. With gold's new record high, there are plenty of holders of bullion who started acquiring it in the first years of the millennium who are now sitting on profit equivalent to 3 times the money.
The question is, however, sell gold in exchange for what?
Certainly trading gold for U.S. dollars is akin to forward selling gold at an incrementally lower price. Anyone smart enough to own gold since 2001 is unlikely to be so silly.
Renminbi might seem like a good trade. The only problem with that is you can't easily spend renminbi at Home Depot or Safeway or Nordstrom.
No, there's really no substitute for gold at this point in the global currency landscape. And so, the normally present impetus to sell and take profit has been castrated by the lack of anything else capable of retaining its value.
Some consideration need now be devoted to the future price potential of gold. Gold began its bullish incline immediately following the dot com bust, and, spurred again by the events of 9/11, has gained, as of today, an average of $87 a year since then. Barring any real change in global fiscal policy, such as an end to the practice of over-leveraging asset bases and bastardizing currencies through sustained deficit spending, it is unlikely this pattern will ease.
Since the United States has forced itself, and by extension, many of its allies, into what would appear to be decades of deficit spending, we can expect this average rate to continue, at a minimum for the next 10 years. That puts the gold price closer to $2,000 an ounce in 10 years than to $1,000 an ounce.
Those numbers also make the more outlandish predictions, such as $5,000 an ounce and, most improbable of them all, $10,000 an ounce, seem a little less ludicrous, and maybe even likely.
In the absence of anything of equal or greater ability to retain value, all of the holders of bullion have no incentive to sell. If anything, the reasons for acquiring gold in the first place are the very same reasons for hanging onto it. So the normal price suppression effect of profit taking is neutralized.
The reasons for gold's ascent is universally acknowledged to be the saturation of the global economy with exponentially titanic amounts of U.S. Dollars, which the American government now prints without purchasers of its debt. Indeed, the Federal Reserve, nominally the beneficiary of U.S. debt sales, is now a buyer. So not only has the dampening effect of profit taking been removed, but the fundamental drivers for the northward trajectory of gold's ascent has been intensified during the last several years.
We know beyond doubt that the mainstream investing public are like so many sheep, following the soiled derriere in front of their noses in the subconscious conviction that there is always greener grass just ahead. We are at the point now where even the alpha sheep leading this wayward flock through increasingly barren badlands is about to experience an epiphany. There is no green grass left. The only grass worth having is the golden straw they left behind in the manger. Upon their return, however, the now starving, homeless and hungry sheep will discover that all the gold has been spoken for, and if they want to survive, they are going to have to pay dearly for a bale of golden straw.
And, since the population of sheep FAR outnumber the population of crafty foxes who have been carefully and judiciously squirreling gold away for the last decade, the effect of this flood of demand is going to see gold blast through $2,000 with ease, in much less than 10 years.
So where is the price of gold going?
At a minimum rate, it will increase by $87 a year in price, for at least the next 10 years. At a maximum, the sky is literally the limit.