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The most common myth
or misperception in the gold market today goes something like this:
"Since
inflation rates are low, then there's no reason for gold to go up very
much."
This
misunderstanding is expressed in many different ways, such as:
"Since the
Consumer Price Index shows only 4% inflation, then gold should go up by no
more than about 4% per year."
or
"Since M1 is
showing only moderate inflation, or deflation, then gold prices are due for a
moderate gain, or even a fall."
or
"Since inflation
expectations are moderate, and interest rates on bonds are low, then gold's
outsized gains are unsustainable, and thus in a bubble."
or
"When interest
rates begin to rise, the more attractive rates will pull money out of gold
and back into bonds."
All of these
statements are not true because they are only vaid
when the world is on a fully backed gold standard.
But we are not on
a gold standard!
Instead, paper
money is highly leveraged to the underlying gold. So much so that, only
in theory could the gold be used to back up paper
money, and only as a last resort if paper money began to die through
rejection by the people, which leads to hyperinflation.
There is about
$15 trillion in the US banking system, and only about $0.35 trillion worth of
gold to back it up, if the gold even exists, and has not been sold or leased
into the market to try to manipulate the market and contain gold's price rise
in dollars.
(261 million oz.
of "official" U.S. gold x $1350/oz. = $0.35 trillion) This is
gold leveraged 42 to 1. This implies that gold could rise 42
times. That's 42 x $1350 = $56,700/oz.
If you count all
the unfunded liabilities of the US government, the leverage is hundreds to
one.
So, to sum up,
the popular myth correctly assumes that inflation will pour into gold, and on
a one to one basis. But it incorrectly assumes that paper money is
fully backed by gold, but it's not. And the myth also fails to account
for all the prior inflation of previous years, which will also pour into gold
and silver.
Here's a bit more
math that more clearly shows why the myth is wrong.
The US
government's budget now exceeds $3.5 trillion, but only collects $2 trillion,
and thus, is printing/creating/borrowing $1.5 trillion of new money to pay
the bills. With M3 at about $15 trillion, the money creation inflation
may be said to be about 10%.
This is the true
inflation, the money creation, and this is only in the US; but the rest of
the world is inflating, too. The US is regarded as about 1/4th to 1/5th
of the world economy, and the rest of the world's paper money systems are not
in much better shape, and often worse, so the world's paper money inflation
rate can be roughly estimated at 4-5 times bigger, or perhaps $6 trillion per
year.
The world annual
production of gold is about 2300 tonnes, which, at
32,151oz./tonne, is 74
million ounces. At $1350/oz., that's $100 billion dollars worth of new
annual world gold production.
See the
problem? How can $6 trillion ($6000 billion) of new money annually, buy
only $100 billion of new gold annually, without a massive increase in the
price of gold?
Gold prices would
have to rise about 60 times, just to balance out the new money creation of
the world. That implies a gold price of $81,000.
The US budget
deficit alone, the $1500 billion, is 15 times larger than the $100 billion
world annual gold production.
Thus, when the
pile of paper money is already so very large, then small increases in the
very large pile are relatively huge to the underlying tiny gold market.
Remember there is
a bit of truth about the myth, and it's that all paper money creation will
flow into gold on a 1 to 1 basis, as it eventually must. Remember, all
paper money will flow into real money, since all paper money represents a
potential claim on real money, and can potentially be spent on gold, and this
has implications far beyond what most analysts are capable of thinking about,
or writing about.
The 10% annual
inflation of the US money supply today, which is $1.5 trillion
can, alone, cause gold to rise 15 times, up 1,400% to over $20,000/oz!
Therefore, there
is no reason to think that gold is in a bubble. Did gold increase 15
times this year from $1000 to $15,000? No? Then gold has not yet
"kept pace" with the inflation. Paper money is the bubble,
it's the bubble that created the housing bubble, and paper money will remain
a bubble for years to come, until it all comes crashing down, and flows into
gold.
The thing to
remember about gold is that it is like a magnet that attracts and devours
fake money. It will draw into itself all the fake money in the entire
world until the paper money fraud is extinguished from the system, and it
will do this naturally, all on its own.
The reason is
that any fool can see the truth of the situation today, and more and more
people are buying gold. As more and more people buy gold, the gold
price will continue to rise. As more and more people see gold prices
rise, even the most foolish of fools will naturally and simply follow the
trend, and buy gold for the obvious gains they are seeing.
This is why the
"powers that be" are manipulating the gold prices, trying to keep
them down, or contain the rise, with a vengeance. This is why there are
so many forms of paper gold to buy that don't require real delivery, such as
leveraged programs, certificate programs, storage programs, IRA programs,
futures contracts, options on futures contracts, ETF's, futures on ETF
prices, options on ETFs, etc. All such forms of paper gold are merely
tricks designed to prevent people from buying real gold, which prevents
gold's real price from going up, which keeps the paper money fraud going.
After all, as
gold rises a mere 30% per year, as it has been done
over the last year, and an average of about 20% per year for the last ten
years, it's far more attractive than most other investments. But
furthermore, as I've shown you, the real potential is for gold to go up by 15
times, when US paper money is inflated by a mere 10% per year.
And what happens
if things continue as they are for the next 15 years? With paper money
inflation at 10%, and with silver increasing at 30%?
If inflation of
paper money continues at 10% per year, for 15 years, the $15 trillion in the
US banking system grows to $63 trillion, having grown about $6 trillion in
the final year!
See for yourself
at http://www.smartmoney.com/compoundcalc/
That shows that
on a large pile of money, 10% growth is clearly unsustainable!
And what happens
when silver continues to gain 30% per year for the next 15 years?
The annual silver
production market today is $15 billion. So that grows to $768 billion,
which is still a very managable, small, and
realistic figure, with plenty of room to continue to grow in a world with $63
trillion to spend!
This shows that
on a small pile of money, 30% annual growth is very realistic and sustainable
for 15 years.
Jason Hommel
Silver Stock
Report
I strongly advise you to take possession of real gold and silver,
at anywhere near today's price, while you still can. The fundamentals
indicate rising prices for decades to come.
Price Board:
http://hommel.name/cgi/priceboard?store=jhmint.com
Our Coin Shops are open 10AM to 5PM Pacific Time, Monday to Friday, closed
weekends.
JH MINT & Coin Shop, Grass Valley, CA -- our largest store, minimum $1500
to ship, USA shipping only, free shipping.
(530) 273-8175
Kerri: 530 273 -8822 silver_support3@hotmail.com
www.jhmint.com
Rocklin Coin Shop, CA -- 15 min north of Sacramento on HWY 80
www.rocklincoinshop.com
Mom's Silver Shop, Sacramento, CA
www.momssilvershop.com
3510 Auburn Blvd., #12
Sacramento, CA 95821
(916) 481 5656
(Mom will ship with no minimum order size, and overseas, and take credit
cards and paypal.)
Oakland Silver and Gold
www.oaklandsilverandgold.com
3929 Piedmont Ave.,
Oakland, CA 94611
osg2010@gmail.com
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