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Gold Going to
Parabolic Top of $10,000 by 2012 - For Good Reasons
No wishful
thinking here! As I see it gold is going to a parabolic top of $10,000 by
2012 for very good reasons - sovereign debt defaults, bankruptcies of
"too big to fail" banks and other financial entities, currency
inflation and devaluations - which will all contribute to rampant price
inflation.
Not surprisingly, I have company
in that view:
Money manager, Peter Schiff, told
Business Week recently that, "Gold could reach $5,000 to $10,000 per
ounce in the next 5 to 10 years" and highly respected economist David
Rosenberg is of the opinion that "There is no doubt that gold can easily
double from here."
THE CAUSES
1. History is No
Guide
Gold has only been trading freely since President Nixon's 1971 decision to
deny gold to the French and others attempting to repatriate their paper
dollars for the metal. As such, there has been a scant forty years of gold
production and trading since it was detached from supporting paper money.
This period has also been marked by substantially higher monetary and price
inflation as well as currency devaluation.
2. Market
Manipulation
The Commodity Futures Trading Commission (CFTC) recently held a major hearing
which blew the doors off bullion metals futures trading markets in terms of
what was revealed publically. I predict this public hearing will be viewed in
the period ahead as the precious metals price liberation event of the decade.
It is commonly known that JP
Morgan Chase in the major player in commodities futures markets trading. Not
only do they take massive naked short positions (betting that prices will
fall), they do it with large substantial leverage. What isn't as well known
though is that Chase acts as the agent for the Federal Reserve Board and
other central banks in 'managing' the markets on their behalf. Central banks
want 'orderly' precious metals markets and prices and currencies which don't
gyrate wildly. Only then can they achieve stealth inflation in their monetary
policy which is so beneficial in servicing debt. It also makes for good
(meaning effective) politics.
3. Insufficient
Physical Inventories
While it is normal for traders to roll their expiring contracts over into new
paper trades, some traders accept cash in settlement rather than the metal.
To the amazement of everyone the recent hearing of the CFTC - specifically
Jeff Christensen's comments - inadvertently confirmed that there is little
bullion in storage at the London Metals Exchange or New York's COMEX to back
the metals trading. He justified this fact by noting that only one ounce of
one hundred traded is paid out in physical metal. This revelation confirmed a
much worse reality than even critics, such as the Gold Anti-Trust Action
Committee (GATA), had expected. It seems that the Asian and Mid East buyers
and owners of bullion have been removing gold from their dealers' vaults and
are taking it "home" thus leaving much less than previously thought
in the London, New York and Toronto vaults.
In addition to what looks like a
production peak in the gold mining industry (production has fallen in 5 of
the last 8 years), central banks have for the first time recently become net
purchasers (having bought more gold last year - 425 tons - than at any time
since 1964).
The single largest purchasers of
metal these days, other than central banks, are the bullion ETF's (Exchange
Traded Funds) which ostensibly have their metal inventories in vaults. These
relatively new investment vehicles, unfortunately, are not transparent in
their business practices. Regular audits by reputable accounting firms and
allocated and segregated bullion inventories stored in reputable vaults are
opaque at best. This begs the question: "Do the large ETF bullion funds
actually have the metal they purport to own, or is their inventory more the
'paper gold' variety in which bullion trading exchanges seem to
specialize?"
THE EFFECT
- The
revelation, outlined above, that there is insufficient physical
inventory to meet new investment demand for ownership and delivery of
physical bullion, is about to blow the price lid skyward.
- As public
awareness of sovereign debt mounts, it will drive home the reality of
mounting government insolvency.
- Confidence
in currencies will wilt commensurately.
- Investment
demand for real gold and real money as a safe haven investment will
expand exponentially.
- These events
should take place from mid 2011 through 2012 and extend further out
toward 2015 before demand is satiated.
- The dramatic
price increases in gold and silver will at that point also satisfy the
unstated desire of central banks and politicians to devalue their
currencies in order to assist them in meeting their debt and unfunded
liabilities.
After the 2008/2009 crash,
governments bailed out their failing financial institutions and investment
banks through a variety of innovative measures. The next time round most
governments will not be in a position to do so - again. Even more troubling,
the IMF (International Monetary Fund) will not be capable of rescuing the
increasing number of insolvent governments and their financial institutions.
Conclusion
You may think my aforementioned
views are crazy or perhaps just that my imagination is way out of hand or, at
best, that I don't have access to the appropriate reality checks. Be that as
it may, I am increasingly confident that the consequences of fragile
sovereign debt, precious metals market manipulation, insufficient physical
supply, and the need for a safe haven investment refuge, will drive precious
metals bullion and mining stock to unimagined heights.
The circumstances immediately
ahead are largely unprecedented. History is therefore only marginally useful
as our guide to the future price of precious metals. We are now in genuinely
unchartered territory.
Get yourself positioned to take advantage of this event of a lifetime.
Protect your assets from the next and more serious leg of the 'Greater
Depression' directly ahead. Get a running start NOW on growing your future
wealth.
Arnold Bock
Arnold
Bock is a Canadian living abroad retired from a career in government.
He has a substantial background in partisan politics and public policy
development as well as in project and program management within the public
sector.
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