Matterhorn Asset Management Sets Three Gold Price Targets: $6,000 – $7,000 – $10,000

Tyler Durden's picture

From Egon von Greyerz of Matterhorn Asset Management

GOLD ENTERING A VIRTUOUS CIRCLE

Fundamental and technical
factors for gold are now in total harmony and gold is entering a
virtuous circle that will drive the price up at its fastest pace since
this bull market started in 1999.

  • It is a fact that gold in US dollars (and many other currencies) has gone up 400% in eleven years or 16% per annum annualised.
  • It is a fact that the US dollar has declined 80% in value against gold since 1999.
  • It is a fact that the dollar and most other currencies have gone
    down 98-99% against gold since 1913 when the Federal Reserve Bank of New
    York was created.
  • It is also a fact that the Dow Jones (and many world stock markets) has declined over 80% against gold since 1999.
  • It is a fact that gold has made a new all time monthly closing high in dollars in August 2010.

 

Gold trend

We expect gold to start a substantial rise now which will continue
for 5-10 months before any major correction. Gold’s technical picture is
extremely strong with a continuous rising pattern of higher highs and
higher lows with the steepness of the curve increasing. From much higher
levels we are likely to see a correction that could last up to a year
before the next rise which will last several years before we see a
significant peak. Once gold has topped we do not expect the same kind of
decline as after the 1980 peak since gold is likely to become part of a
future reserve currency. At that point gold will be a solid but
unexciting investment with very little upside potential. But that is
likely to be a few years away.

In spite of a 5 times increase in the
value of gold or an 80% decline against many currencies and stockmarkets
in the last 11 years, most investors own no gold and still do not
understand the importance and value of gold. In a world of constant
money printing and credit creation leading to devaluing currencies and
devaluing assets, gold reflects stability and is virtually the only
store of value that cannot be destroyed by governments.

The average asset manager, fund manager,
pension fund or private individual owns no physical gold and at best
has a very small exposure to some precious metals stocks. And in spite
of this gold has gone up over 400% in 11 years. How is that possible?
For the simple reason with the relatively modest demand that we have
seen in the last few years, there is not enough physical gold even at
these levels. The increase in demand that we have seen has most probably
been satisfied by central banks leasing or lending their gold to the
bullion banks. Central banks supposedly own 30,000 tons of gold but
unofficial estimates of their real holdings are at 15,000 tons or less.

So what are the factors that are likely to lead to a major rise in the gold price?

We have for several years outlined in
our Newsletters the problems in the world that inevitably will lead to
massive money printing and a hyperinflationary depression (see for
example “Alea Iacta Est”  and  “There Will Be No Double Dip…” on the
Matterhorn Asset Management website).

There are three insurmountable problems:

  • Real unemployment at 22% in the US will continue to go up
  • The budget deficit will increase dramatically due to the problems in
    the economy and in a few years time the interest on the Federal Debt is
    likely to be higher than tax revenues.
  • None of the problems in the banking industry have been solved but
    merely swept under the carpet by phoney valuations of toxic debt with
    the blessing of governments. The circa $20 trillion that were pumped
    into the world economy to save the financial system in 2008-9 have had a
    very short term beneficial effect but solved none of the problems.

The effect of this massive $20 trillion
infusion has been ephemeral since we are entering the autumn of 2010
with virtually every single economic indicator and statistic in the US
deteriorating rapidly. With interest rates already at zero there is no
ammunition left but one. And it is this specific last bullet that will
be used to infinity in the next few years and starting very soon, namely
UNLIMITED MONEY PRINTING. Every single area of the US economy will need
support or printed money, whether it is the federal government, the
states, the municipalities, banks, pension funds, insurance companies,
the unemployed, corporations, health care, housing market, commercial
real estate,  individuals, etc, etc, etc. The list is endless and many
other countries will follow.

Before we talk about gold in hyperinflationary terms, let’s look at where gold is likely to reach in today’s money.

Three realistic Gold targets: $6,000 – $7,000 – $10,000:

  • In the 1971 to 1980 gold cycle, gold went from $35 per ounce
    to $850 or up over 24 times. If we were to see the same increase in
    this cycle, gold would rise to over $6,000.
  • The gold peak at $850 in 1980 corresponds to over $7,000
    today adjusted for real inflation based on the inflation rate as
    calculated by John William’s Government Shadow Statistics (
    shadowstats.com)
  • Gold and gold mining shares were an average of around 25% of world financial asset between 1921 and 1981. Today,
    gold and mining shares are only 0.9% of world financial assets. If gold
    and mining shares were to go to 25% of financial assets
    , gold would go to over $31,000. But even if we assume that world financial asset would go down by 2/3rds from here that would put gold at over $10,000.

The three historical comparisons above (and see chart below)
would put gold anywhere from $6,000 to $10,000 and this is without
inflation, or more likely hyperinflation.  In a hyperinflationary
environment, the price gold will go to is really irrelevant since it
depends on how much money is printed. In the Weimar Republic for example
gold went to DM 100 trillion. What is more important is that gold is
likely to go up at least 5 times from today without inflation and with
hyperinflation gold will protect investors against the total destruction
of paper money and many other assets.

Wealth Protection

Gold must only be held in its physical
form and the holder of gold must have direct access to the gold. We
consider ETFs, gold in a bank (whether allocated or unallocated),
fractal ownership of physical gold, futures or any other form of paper
gold as very risky and a totally unsatisfactory method for owning gold. 
Physical gold should preferably be stored outside your country of
residence and outside the banking system. The holder must have direct
access to the vaults where the gold is stored.

Silver

Silver has been lagging gold since its
peak at over $21 in 2008. For the last few months the gold/silver ratio
has been consolidating between 58 and 71. The ratio is currently around
64 and is likely to start a move down to new lows below the 2006 low at
just 44.  So this is very good news for silver which is likely to
outpace gold substantially in the next few years.  Silver is probably
the most undervalued precious metal today and has great potential.

But there are many caveats for silver:

  • It is an extremely volatile metal and is definitively not for the fainthearted.
  • We only recommend physical silver owned directly by the investor.
  • Physical silver currently weighs 64 times more than gold for
    the same amount invested and is circa 120 times bulkier (due to its
    lower density).
  • Therefore silver is not as practical as gold as a means of payment.
  • Also, silver is subject to Vat (value added tax) in all European countries. Thus silver cannot be moved freely across borders.
  • Physical silver for investment purposes can be bought/sold
    and stored tax-free in Switzerland but if the investor takes possession,
    Vat must be paid.
  • Due to the above factors investors should carefully consider the split between physical gold and silver.

Stockmarkets

At the beginning of July this year we
sent out a message to investors that, based on our proprietary
indicators, we expected stockmarkets to finish the correction up at the
end of July and resume the major downtrend in August. We also said that
gold would start its major rise in August.  And this is exactly what has
happened so far.

We now expect major falls in all
stockmarkets worldwide over a sustained period. We would not be
surprised to see the Dow down to the 1,000 area (in today’s terms)
before this bear market in over. But it will not be a straight line and
there will be extreme volatility. When hyperinflation sets in,
stockmarkets will have a major but temporary surge.

The only stocks that investors should
hold are precious metals stocks and possibly some resource and food
stocks. But it must be remembered that stocks do not represent the same
degree of wealth preservation as physical precious metals held directly
by the investor.

Currencies

Currencies should in the next few years
be looked upon as a necessary evil and not as a store of value.  All
currencies will continue to decline against gold, just as they have in
the last 11 years and in the last 100 years. Due to money printing by
most governments, we will have a fierce game of competitive devaluations
by virtually all central banks. We have seen the Euro and the pound
weaken substantially and the next currency the speculators will jump on
is the US dollar.  The dollar is grossly overvalued, partly due to the
weak Euro, and is likely to weaken significantly due to the problems in
the US economy.

Currencies only reflect relative value
and not absolute value since they can be and are printed until they
reach their intrinsic value of zero. It is a fallacy to measure the
value of a currency relative to another currency since they are all
losing value. Currencies should only be measured against real money
which is gold. This is the only method that reveals governments’
deceitful actions in destroying the value of paper money. Therefore it
is a mug’s game to speculate or invest in currencies since they will all
decline in an extremely volatile and unpredictable market.

So are there currencies which are likely
to perform better on a relative basis for funds that have to be held in
paper money? We believe that Norwegian kroner, Swiss Franc, Canadian
Dollar, Singapore Dollar, Australian Dollar and Renminbi will perform
relatively better than many other currencies.

Government Bond Markets

The bond market is the biggest bubble in
financial markets worldwide, in our opinion. Investors around the world
are worried about the state of financial markets and therefore believe
that government bonds represent a safe haven. These investors will
receive the most enormous shock on two accounts. Firstly, no government
will be able to repay the debts outstanding. So there will either be
government defaults, moratoria, or money printing that totally destroys
the value of the bonds. Secondly, interest rates are likely to go up
significantly to at least 10-15%, totally destroying the value of the
bonds.

Conclusion

We are now entering a period when most
major asset classes and in particular stocks, bonds and currencies are
starting a major decline. Since most financial assets in the world are
invested in these three categories plus real estate which will also
decline, we are likely to experience major shocks and crises in the
financial system and the world economy.  Wealth protection is now more
important than probably at any other time in history. Physical gold and
possibly other precious metals directly controlled by the investor will
be a vital part of a wealth preservation portfolio.

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JJ McApe's picture

Is this the Golden Bullet?

Hard1's picture

Isn't bonds/stocks/currencies are overvalued and gold is cheap a little biased comment coming from an Asset Management firm that only offers gold.

akak's picture

The presence of a bias does not necessarily imply the absence of truth.  Are not those with the best or most accurate knowledge going to be biased towards their own conclusions?

dnarby's picture

Ha ha ha, this report is funny!

For starters, the average historical percentage of global assets held in gold and gold mining stocks during times of finanical crisis is 26%, not 25%...  Get your facts straight!

And currently, the percentage held in gold and gold mining stocks is 0.8%.

That means we need a 32.5x increase in gold in gold stocks to meet historical averages.

That puts the price of gold at ~$40,625.00/oz.

$10,000.00/oz, ha ha ha ha ha!

snowball777's picture

We will all be ruled by gangster rappers by virtue of the value of their chains.

idea_hamster's picture

There would be a wonderful poetic justice to that.

snowball777's picture

Let's go full circle and have all the descendants of the former plantation masters build hybrid Escalades and bazooka subwoofers as reparations.

Would also be ironic if the mortgage problem was resolved via 1-800-GOT-GOLD scheisters sublimating gold into relieved debt.

I too, have a dream.

contrabandista13's picture

"... I'm just out there donald trumping gettin paid for buildin somethin...."

MrTrader's picture

Thank you for the strong sell signal.

Tyler Durden's picture

Further confirmed by the $10 spike

LoneStarHog's picture

Sooooo...now that you have sold...at what price do you think you will buy...$1300...$1400...???

LoneStarHog's picture

Was Karl Denninger a consultant for this paper?

Imminent Crucible's picture

Karl Denninger is not bullish on gold and has stated flatly that gold will not protect you in the unfolding debt collapse.

I think he's wrong about that, but let's not misrepresent his position.

chrisina's picture

I don't buy Gold because of a price target. I buy physical Gold because it doesn't have any liabilities from the credit system attached to it. It's the only way to store wealth if the credit system collapses. Likelihood of which is increasing day by day.

Sudden Debt's picture

and because gold feels as soft as a babyskin :)

It's just fucking cool to have. I just like to look at it when I'm borred :)

GOLDFEVER BABY!!! AND I'VE GOT IT!!!

billhilly's picture

Yah Man!  and the fondle factor of a 100 0z bar of Silver sure gives a warm cozy feel!

Brutlstrudl's picture

Around my  way, people have stuff growing in their closet that they look at when  bored/

papaswamp's picture

Gold and Silver just went verticle!

Sudden Debt's picture

you should apply for a job at CNBC :)

papaswamp's picture

Hey I was reporting the facts..CNBC would probably either ignore the price spike that just happened or say"...gold and silver are reacting positively to Prez Obama's new stimulus plans..."

e1618978's picture

I think he was referring to the fact that you misspelled vertical.

antidisestablishmentarianismishness's picture

Apple Computer has outperformed gold by about 6 to 1 over the past 10 years.  Does that mean Apple is going to $3000 or gold is going to $200 or what?

Quintus's picture

Interestingly, despite the huge ramp in price that you identify, I do not recall reading hundreds of 'Analysts' raving on about how AAPL was in a bubble, and nobody should invest in it 'cos it's gone up so far already new buyers have missed the boat etc. etc. etc.

Funny that.

Imminent Crucible's picture

Probably it's AAPL's 0.19% dividend yield.  You can't pass that up.

hidingfromhelis's picture

But, but...you can eat apples.  Oh wait, you meant Apple Inc, the computer company.  My bad.

Sean7k's picture

The elites and central banks will never allow the common man to prosper through the purchase of gold. Gold purchasing will be restricted to the few with insight to buy while allowed to and those that have always owned it. 

Gold isn't tulips. It's finite and mostly in the hands of the wealthy. The same ones that make the rules. If we buy too much, they will confiscate it. If we use it, they will jail us. 

When they have drained our wealth through purchases, they will impound it. 

Consequently, buy gold, but be prepared to defend it with all your wiles. Be prepared to save it and ride out the inevitable storm, so you can use it on the other side. The wealthy do not suffer competition and they don't let just anyone into their club. 

LoneStarHog's picture

This is a true strategic and logistical nightmare for the corrupt powers, unlike Waco, Ruby Ridge, et al.

Without the benefit of actual statistics, I will infer from what information is available that most gold owners are also well-armed.

Waco, Ruby Ridge, et al. all involved a select individual or small group in a confined area. Easy pickings for government thugs.

What do they think would be the logistics to confront literally millions in individual locations?

I truly believe that part of the master plan by these corrupt sociopaths is to perpetuate the paper scam of U.S. economics/finance until it just crashes. It will then be too late for the general population to secure a lifeboat of gold/silver. THEY will already be secured, which I wrote about in 2004, which simply stated that the paper game at the bullion banks was to allow the Jamie Dimons of the world to put their personal assets into depressed metals, while using bank funds to do the manipulating.

The actual number of gold/silver owners will be so minuscule - most will own small amounts by comparison - that it will not be worth harassing them. Allowing these few to become the new Middle Class will be the best solution.

However, I am not naive enough to believe that these corrupt sociopaths work on mental logic, so preparations must be made.

Sean7k's picture

Which is why they won't attempt it. They can control the use of it in hard times. When people become desperate enough to use it. 

While I agree with you, I just think the elite are so greedy, they will not stop at being reasonable. Their thirst for control is absolute. 

Hope for the best, plan for the worst...

LoneStarHog's picture

"They can control the use of it in hard times." -- You mean like Prohibition controlled alcohol?

How in all that is holy does anyone think that THEY can control the use of it, especially in desperate times?

Almost Solvent's picture

"They" can't.

Confiscation would not be logistically possible, "they" know it.

Most likely it will start with heavy taxation on the sale/purchase of gold.

Maybe migrate to a "fixed" price.

Ending in the exposed naked emperor.

OR, "they" want gold to skyrocket as "they" have secretly amassed huge physical reserves and stand to profit immensely when the fiat falls and it turns out "they" had the physical gold all along.

tmosley's picture

Heavy taxation will create or expand the black market.  Creating a fixed price will create a gold standard/expand or create a black market.

There aren't a lot of valid options for those in charge of our economy.  This is always the case when a small group is in charge of any economy.

Stop saying "they".  You know exactly who we are talking about.  The Treasury, the administration, and the Fed.  Stop pretending like this is all some shadowy conspiracy, rather than a simple failure of a large planned economy.

LoneStarHog's picture

Uh...What pronoun would you use for that group?

thesapein's picture

Same pronoun, just without the "scare quotes", was meant, maybe?

LoneStarHog's picture

That dumpy New York Gumba, Snookie, scares me more than a couple of quote marks.

But...hey...that's just me.

thesapein's picture

"I" ain't afraid of no quotes!

faustian bargain's picture

who ya gonna call? Quotesbusters!

tamboo's picture

those guys are middlemen, the really big money pulls their strings.

apberusdisvet's picture

The fact that PM prices have been suppressed by the CBs for at least 40 years is no conspiracy theory; it's fact and for obvious reasons.  "There shalt be no safer haven than USTs".  Unfortunately for the banksters, the Asians refuse to play in their game.  The Chinese, in particular will seek at least a partial gold standard in the coming years.  Take that to the bank.

Snidley Whipsnae's picture

Most likely a heavy tax on mined ore...similar to what Australia proposed recently. What is already above ground and held by individuals would be very difficult to confiscate and would likely cost more than it produced.

Heavy taxation on owned bullion = creation and expansion of black markets = funding for a new era of mobsters similar to prohibition. No good could come of it.

SWRichmond's picture

I see parallels between allowing real wealth to circulate and be privately held, and the individual right to bear arms.  Both leave power diffused in the hands of the many where it is much more difficult to manipulate / abuse.  Both are protection against standard means of abuse by governments: inflation of the currency, and abuse of the monopoly on the use of force.  Both were enshrined in the U.S. Constitution, for now-obvious reasons.

LoneStarHog's picture

What they can attempt to control is ammo, either at the manufacture or taxation.  That is why ammo sales have been so high and shortages had developed.

chrisina's picture

You can also store your physical gold, 100% allocated, in a tax free vault in Switzerland, in a perfectly legal and secure manner.

 

Almost Solvent's picture

And when SHTF, how can one access that gold unless one is in Switzerland or any bank deposit box when the bank holiday is instituted?

Keep physical nearby so that it can be acessed when needed.

DosZap's picture

chrisina,

And where do you think they will go first to get your wealth/gold.Any, and all Banks, Vaults.

They love it if you store it........you control it directly, YOU control it.They may issue confiscation, but folks want ice water in hell also.

Guess what neither WILL get it.After the abomonation and disaster these buffoons have caused globally,locally, folks are not going to turn over the only things they have left of value voluntarily.......

This is not 1933, and we not only distrust the Gv't we despise it, we hate it.

Unless, and until they ever get back to Governing as intended by the Constitution, they are no part of me.

My allegiance is to regular Americans, and family,and survival.

I take serious offense at what they have done, and are doing.

breezer1's picture

not sure why you were junked. makes sense to me. gold is political and poison to paper money. when it goes up there is no comment but when it goes down $10 the msn uses words like plummet and crash . 

if you want to poke a central banker or government in the eye, buy physical gold and silver. simple.