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Guest Post: Is Gold Still The Answer For Investors?

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Submitted by Bud Conrad of Casey Research

Is Gold Still the Answer for Investors?

Though late to the party as usual, the proverbial man on the street – along with members of mainstream media and Wall Street heavyweights – is finally waking up to the decade-long, 700% increase in the price of gold, joining a growing buzz around the monetary metal. From questions whether gold is in a bubble to predictions that soaring prices are just around the corner, one thing is clear: a new phase of awareness for gold is upon us. How far might it move before these troubling times are over?

The Big-Picture Economic Environment

Kicking things off, I would like to explore several themes in order to put the current economic situation in context.

For example, continuing weakness in employment and housing indicates that the big slowdown that started in 2007 persists. Actually, the economy never exited the recession but rather – thanks to massive intervention – enjoyed a temporary reprieve that I have called the "Eye of the Storm."

We experienced the first part of the storm from 2007 to 2009, but by late 2009 and into 2010 massive bailouts, stimulus, and deficit spending produced a false-dawn recovery. This recovery was most pronounced in the financial sector where the government transferred toxic private-sector debt – including large amounts held at Fannie and Freddie – onto the government's own balance sheet.

We now are entering the second half of the storm, as it is becoming impossible to ignore the unprecedented and intractable sovereign debt problems sweeping the globe. These problems are especially obvious in the weak countries of Europe where punitive levels of interest rates are pushing weaker members of the eurozone to the brink. As the parts begin to fail, so will the whole.

And the US is not so far behind, with its own historic levels of government debt and deficits running at levels never seen before.

As we at Casey Research have warned of ahead of time, in their attempts to avert a 1929-style depression, governments took on the bubble in toxic private debt, stupidly transferring that burden onto the government (and taxpayers), causing the problem to morph into today's sovereign debt crisis. Simply, with the government debt too big to ever be repaid, we are now beyond the point of no return.

The private debt problem is not resolved, either. That's because much of the bad debt on the books of corporations and financial institutions was hidden through "Extend and Pretend" practices, starting with the elimination of mark-to-market accounting requirements. Much of this debt will eventually be revealed to be in default.

Worse, because sovereignties around the world have caused their finances to deteriorate to such extreme levels, they are now ill prepared, and maybe even unable, to step in yet again to soften the blow of private-debt deleveraging and write-downs. As a consequence, the next part of the storm could be prolonged as companies and banks are dragged down.

Furthermore, due to their poor decision-making to this point in the crisis, the governments themselves are now facing a loss of confidence in their sovereign debt, evidenced by soaring interest rates and the rising cost of credit default swaps (CDS) for the PIIGS.

There is no way to recapitalize the Greek debt, and Finland is right to demand collateral, which it recently has. The contagion will extend to the other PIIGs and to the stronger European countries of Germany and France – they can't also bail out Spain and Italy, which are too big to fail, without destroying confidence in their own economies. Yet absent such a bailout, massive restructuring of weak-country debts held on the books of the banks in the stronger countries will further exacerbate and extend the crisis.

Meanwhile, the European Financial Stability Facility (EFSF) is too small, and the resources to cover all the countries in trouble just aren't there. Economists now understand that the PIIGS are well past the point of no return with 130% or so of debt to GDP. The European Central Bank (ECB) will be expanded, like other central banks, to print more euros, but still the system is going to face more debt problems.

The ratio of debt to GDP in Europe, the US, and elsewhere (which is projected to only increase from here) will lead to the sort of problems historically associated with Latin American banana republics, collapsed communist states, and certain countries in Africa. While this is not being adequately discussed in the mainstream, the debt of the supposedly advanced countries is projected to explode beyond the levels that are already tormenting the PIIGS. Put another way, in the decade just ahead, I expect the advanced countries to undergo the same pain we are already seeing in the weak countries.

Supporting that contention, a new paper by the Bank for International Settlements (BIS) points out that when government debt approaches 80% to 100% of GDP, there is a weakening in the economy. Greece and the euro system aren't just facing an economic weakening but a breakdown of the financial system.

Importantly, the debt-to-GDP ratio of the United States is now (conservatively) at 95%, and demands from a tidal wave of retiring baby boomers will make the deficits far worse. Remarkably, annual deficits of a trillion dollars or more over the coming decade are projected. The US debt-to-GDP ratio will break above 100% in two years or less, and debt could double in the next decade if interest rates rise in concert with a widespread loss of confidence in the government's ability to manage its fiscal and monetary affairs.

The next logical step in this sovereign debt crisis is for us to see further signs of a loss of confidence in the currency. Such a currency crisis is usually measured by rising inflation that, in turn, leads to higher interest rates, which make the crisis worse. That’s because a vicious debt "death" cycle begins to form, with interest on the debt begetting ever-worsening deficits begetting ever higher interest rates that, in time, leave the country unable to even pay the interest on its debt, let alone pay down the debt itself.

Sounds dramatic, I know – but that is what is happening in Greece. The major difference from historical events of a similar nature is that this time, it is not just the smaller, less developed countries – the so-called banana republics – that are in the throes of a financial collapse but most of the world's advanced economies. This is certain to end badly.

In the short term, the central banks will print up money for their governments and bankers, but in the long run, the loss of confidence will become so great that currencies self-destruct. As the problems extend around the globe, currencies and bond markets will be wiped out together.

In time, new currencies will have to be issued, almost certainly with some form of link to gold and other commodities. To survive what's coming, you need to understand the process and try to gauge how fast it may unfold. To shed further light on those issues, in the following I provide data on how serious the situation is and conclude with my predictions for the price of gold.

Central Banks Can Print Paper, But They Can't Print Gold

Gold is the only real money. In contrast, the power of central bankers to create fiat money out of thin air has distorted our financial systems beyond anything imagined in the early days of slips of paper issued for gold held at the local goldsmith's.

To get a sense of the distortion, we'll start by looking at the difference between the quantity of gold held by central banks and the amount of paper money they have issued. As you can see in the chart below, the amount of gold held has been surprisingly stable. But the blue line, a close reflection of the narrow definition of money that has been created globally, shows that the quantity of all forms of financial assets has grown dramatically.

The clear point of this chart is that the nominal quantity of the paper money in circulation has been growing much faster than the gold that formerly underpinned that currency and may be called upon to do so again before this is over. Regardless, as the power of money creation greatly benefits the money printers, we expect profligate money spending and creation to continue apace.

Importantly, central banks are no longer selling off their gold but rather are increasing their holdings. You can see that shift in the small upturn in the red line at the right of the chart. Central banks halting gold sales and becoming net buyers of gold decreases supply and increases demand, leading to higher gold prices.

As a related anecdote, Venezuela's President Chavez recently recalled gold reserves not currently held in Caracas, exciting the gold bulls with the thought that the withdrawal of some 150-200 tonnes of gold from the Bank of England and bullion banks will force a squeeze on traditional stockpiles of gold. Chavez is further proposing to nationalize Venezuela's gold mines. His many faults aside, I think Chavez understands the situation perfectly and is using his dictatorial powers to move back towards gold faster than slower-moving nation-state competitors.

Another way to measure the debasement of the world's currencies is to compare global industrial production to the global quantity of currency in circulation. As you can see in the next chart, industrial production has only moderately increased over time. Since Nixon closed the gold window in 1971, the quantity of currency in which that output is priced has grown exponentially. Is it any wonder that the nominal price of the average car has soared from $3,542 in 1971 to almost $30,000 today?

Of course, the price of gold as measured in these currencies has increased over time. At least in theory, the ratio of the dollar value of gold to the dollar value of all currencies in the world, shown in the next chart, should give us a basic measure as to whether gold is overpriced.

As you can see, gold would need to trade closer to $10,000 per ounce to cover all the paper issued over the period. This confirms, in my mind, that although gold is rising rapidly towards $2,000 an ounce, gold investors need not fear that it is in a bubble or that its upward momentum is nearing an end.

Federal Government Deficits Are "Beyond the Point of No Return"

The government's debt has accumulated to an amount so enormous that it won't ever be paid back. The annual deficit is unmanageable as Democrats cry for more spending and Republicans want to continue tax cuts. The chart below shows that the current deficit is at a completely new level, even in comparison to the two world wars.

Looking at the future of government deficits, the Congressional Budget Office (CBO) starts with a baseline projection of the expected government budget deficit based solely on laws already enacted. In other words, the baseline doesn't account for new laws, which invariably expand spending. Not surprisingly, as you can see in the chart here of previously published baseline forecasts, the CBO's deficit projections are always optimistic about the expected deficit.

For a look at a more reasonable assessment of the impact of yet-to-be-enacted legislation on future deficits, we turn to a set of data assembled by the Concord Coalition that show much higher deficits going forward. Here are the modifications that underpin what they call a "plausible" scenario:

The CBO baseline is adjusted to assume appropriations increase at the same rate as the economy (GDP growth). This increase is closer to the historical average rate of increase. They assume that supplemental appropriations do not continue indefinitely. For the wars in Iraq and Afghanistan, troop levels slowly decrease to about one-third of their level at the time of the estimate. They assume that Medicare physician payment cuts (under the Sustainable Growth Rate (SGR) are postponed, as they have been for the last several years.

The major tax cuts are assumed to extend beyond 2010. One-year patches to the Alternative Minimum Tax are enacted, holding the level of taxpayers hit by the tax roughly constant throughout the baseline period. A calculation for the increased debt service (interest payments) that these policies cause is added.

As bad as are the resulting deficit forecasts, however, the assumptions behind even these "plausible" scenarios are so far off from my expectations that I am confident they err on the side of being much too conservative. For example, in the Concord Coalition's assumptions, the Consumer Price Index never rises above 2.3% – all the way out to 2021 – and the unemployment rate drops to 5.4% by 2016. Along the same optimistic lines, 10-year Treasury interest rates never climb above 5.3% and GDP will reach 5% in real terms by 2015.

While no one can see the future, all of my work leads me to expect much higher inflation, much higher interest rates and a much slower growth of GDP over the time period.

And I can think of worse scenarios, like a recession that cuts tax revenue and higher interest rates that cost more to service the government's debt. The expansion of war to Libya and Pakistan, and a comment from Obama that the Syrian president "must go" indicate that military spending will continue to be high.

My point is that even under the CBO's Pollyanna projections, US deficits ensure that total debt continues to rise into increasingly dangerous territory – but actual deficits are likely to be much worse than those projections, and quite possibly devastatingly so. Deficits debase the dollar and are bullish for gold.

The economic situation in the US is declining rapidly, with zero net jobs created for August and the numbers from the previous month adjusted to show a further loss of 58,000. And even those dismal numbers understate things: embedded in the latest report were 81,000 jobs added from a flawed birth/death model that estimates new jobs from small business.

Elsewhere in the economy, housing prices remain weak and consumer confidence has turned down sharply.

The likelihood of continued recession adds to the deficits by decreasing taxes and increasing demands for government spending on unemployment and stimulus.

Adding it all together, it becomes clear that the trajectory for government deficits, and therefore more debt, is to continue to go up, and dangerously so.

The Fed Papered over the Private Debt Crisis But Is Creating Future Inflation

The Federal Reserve jumped into the credit crisis with both feet, tripling its balance sheet since 2008. It did this by creating deposits at the Federal Reserve out of thin air to buy mortgage-backed securities and Treasuries to the tune of $1.6 trillion. Historically, when the Fed paid no interest on deposits, banks would draw down these new deposits to lend out to borrowers in order to make a return, expanding the money supply in the process. By expanding credit, this process also can help prime the economy. That hasn't happened this time around, and credit has not grown in the private sector.

The deposits at the Fed are obvious in the chart below. Banks receive 0.25% interest on the deposits, which is better than they can currently earn with short-term loans and T-bills, so the Fed has $1.6 trillion of deposits it never had before.

It is helpful to understand the details of what we call printing money and the physical paper money in circulation. The chart above shows that the outstanding currency in circulation (blue area of the chart) is growing at a relatively slow rate. The amount of paper money is not really decided on by the Fed; it is the result of the preference of the population to carry cash as opposed to having deposits at their bank. When people withdraw cash, as they do around the Christmas holidays, for example, the demand for paper dollars increases at the commercial banks. A commercial bank can send a Brinks truck to the Fed, ask for more dollar bills and have the Fed decrease its account at the central bank. In other words, the process is not driven by the Fed but the consumers and the banks.

If the Fed wants inflation, stopping the interest-rate subsidy of paying interest on deposits to the banks would be a good place to start. Then banks would look for places to loan money and inject it into the system.

The Fed surprised the market by extending its policy of a 0 to 0.25% fed funds rate to mid-2013.

Most people reading that the Federal Reserve plans to maintain current low interest rates out to 2013 probably shrugged and went about their business. But I think it's important to understand that the only way the Fed will be able to meet its low interest rate pledge is to buy Treasuries with newly created money – essentially printing money to purchase the government's unending supply of Treasuries. Quantitative easing, anyone?

The big question is whether the policy will have a sizeable effect on markets. The chart below shows the historical jump in the Fed's combined policy tools that were used to lower rates and bail out financial institutions through a variety of programs. These include the big purchase of mortgage-backed securities (MBS) called QE1 and the large purchase of Treasuries called QE2.

The point of the extrapolation in the chart is to guesstimate how much more money the Fed might need to create to keep the rate extremely low for another two years. By connecting a straight line from the start of the unusual policy tool expansions in late 2008 to today's number and then extending it to 2013, we can estimate that the policy might require about $1.5 trillion in order to keep the rate low.

The Fed doesn't calculate the amount of money that might be required and probably doesn't know for sure. They just keep buying on the open market until the rate target is reached. If there were a loss of confidence in the dollar, the amount of the purchases required could become very large – and in the extreme, printing more money contributes to that loss of confidence, which in turn causes runaway inflation. We are not there yet. But this kind of open-ended promise is a dangerous precedent because we can't be sure of the ultimate cost of the commitment. And make no mistake, it is an astounding commitment. At the meeting where the decision was made, even more aggressive operations to expand the money supply were discussed.

The long-term direction of the Fed is not in doubt: they are debasing the dollar.

In the next chart, we look at the mirror image of the commercial bank deposits at the Fed – the cash being held on the balance sheet of the banks. As you can see, this confirms that instead of making loans, they are holding cash, mostly in the form of these Fed deposits. The effect is that the Fed policies have had much less effect on the economy outside of the banking system than would usually be the case, given their extreme bailouts and money "printing." Inflation has been contained to commodities, and interest rates have remained at record lows.

The fact that this money sits mostly as cash deposits at the Fed is why the QE programs have had little effect on the economy. Rather, it is clear that the Fed’s priority has mostly been to provide support for the banking system. Though going forward, these deposits – almost $2 trillion – could be easily loaned into the system, and the result could be very inflationary.

Europe Is Turning to the US Dollar and to Gold for Safety

The loss of confidence in a country is most obvious when lenders demand high interest rates to loan money to a government by buying their bonds. With the yield on two-year Greek government-issued notes now at 45% and one year being quoted at 70%, the situation in Greece has gone beyond the level where the government can operate.

The risk in Europe is rapidly becoming more acute as the promised bailouts aren’t happening and the population of Germany is turning against a further expansion of the European Financial Stability Facility (EFSF) that was set up in an attempt to calm the situation. A series of routs for German Chancellor Angela Merkel’s political party in recent local elections reflects the public discontent with further bailouts at the German taxpayer’s expense.

The Wall Street Journal reported on September 5: "The suspension of the talks in Athens between the government and a group of officials representing the providers of Greece's bailout cash came, officials said, amid a dispute about how to address new gaps opening up in the government budget deficit."

In September, the Bundestag (the German parliament) is expected to decide on a package that empowers the EFSF to buy bonds preemptively and recapitalize banks. While the bill is likely to pass, the furious debate leaves no doubt that Germany will resist moves to boost the EFSF's firepower yet further. Some say the fund needs €2 trillion to stop the crisis from engulfing Spain and Italy.

In short, the very fate of the European monetary union is hanging by a thread. And, as noted earlier, the banking crisis will be more difficult to handle this time – the governments are in much worse shape because they took on so much additional debt in bailing out the banks to this point. So this time a private banking crisis could become much worse, leaving the central banks as the buyers of only resort for government debt. Should that occur – though we at Casey Research believe it's a matter of when, not if – it will be the starting gun for the end of the fiat currency systems.

In the meantime, the next chart shows clear signs that foreign central banks are beginning to run scared – indicated by a soaring willingness to park money with the Fed. They were big users of reverse repos when the Lehman collapse signaled the onslaught of the credit crisis, and their holdings just spiked again in the face of European weakness.

The interpretation is that foreign central banks are finding the safety and returns in the US more attractive than their own banks. Regardless of the causes, this measure reflects banking system fear and is indicating more trouble ahead.

The result of a loss of confidence in Europe is a flight to safety, i.e., to the Swiss franc, the dollar, and to gold. The dollar has been less coveted because of its own flaws.

US Money Growth Is Picking Up

Recently, the money supply has taken a jump with Fed liquidity, and commodity prices have risen.

We need to consider that international forces may be a factor in driving US money growth. A European loss of confidence is decreasing the attractiveness of keeping deposits in European banks and may be behind the increase in deposits at US banks. Cash assets at foreign institutions in the US have jumped from $400 billion to $800 billion since the beginning of 2011. It is certainly not a booming US economy driving the US money supply; this increase in foreign deposits is suggesting the money supply increase is due in some part to a flight to safety from worried Europeans.

Back to Gold

As we are trying to revisit our base case for gold going forward, let’s return to the ultimate safe harbor. The next chart illustrates, through the ratio of gold to the increase in M1 and M2, that gold is still well below its peak of 1980.

In the chart below, I look at one slice of the analysis that shows that money printing and fiscal deficits have driven commodity prices higher. As you can see, the index of world food prices has risen 40% over the last year. It was rising fast before the credit crisis, dropped during the worst of the crisis and is rising again, along with gold.

As should be clear, deflation is not part of the story for food or gold. The path forward points to higher prices, especially if the banks return to their core business of lending. The right way to look at the speculative fever is not to look at the gold market but to what the government is doing to the currency. There is a lot more debasement to come – which means a lot more price rise ahead.

Gold Is Not Record High in Inflation-Adjusted Terms

Gold is just bouncing off $1,900/oz highs, a record in nominal terms. The blue line shows the average monthly price of gold. As you can see, the previous peak was in 1980 at $675 per ounce monthly average, which included an intraday high of $850. But the dollars of 1980 would purchase more than the dollars of today. To estimate the number of today's dollars that would be required in 1980, we can use the inflation index of the Consumer Price Index (CPI). The red line indicates that even by this manipulated government measure, the 1980 price of gold in today's dollars would be $2,000. We are getting close but have not yet reached the old peak.

However, as you are probably aware, the government's CPI numbers seriously underreport the amount of inflation. The government has made a number of significant adjustments to its CPI calculations, all of which cause it to be understated compared to the CPI as constituted in 1980. Thus, for example, today's CPI uses rental equivalent for housing costs; inflation is revised downward based on new improvements in products; and even the basket of commodities used in the calculation is changed when an item becomes expensive.

Another view of inflation comes from John Williams of Shadow Stats, who removes the adjustments and concludes that inflation is much higher than the CPI admits to. Applying his inflation numbers suggests that the 1980 gold price peak would have been $7,000 in today's dollars, as indicated in the green line. The visual conclusion is that in inflation-adjusted terms, gold still has a ways to run.

A one-year chart of gold shows it already exceeding my prediction of rising to $1,800 by the end of the year. The subsequent drop of 10% from $1,900 to $1700 was surprising, but not enough to indicate a change in direction because gold had risen so much just since July. The drop may have been inspired by exchange margin hikes, which hurt momentum and highly leveraged traders, but margins do not change fundamentals. The margin hike of 27 % in August was in line with the preceding price rise, and the subsequent price recovery confirms that the effect was short lived.

Gold Is Entering a New Phase of Public Acceptance

The fundamentals of government deficits and the Fed's loose monetary policies have, if anything, become worse. We at Casey Research have been pounding the table for years that gold is a must-have, long-term hold for protection against a demise of the dollar. The 700% increase over the decade – running laps around the performance of Warren Buffett's much-touted Berkshire-Hathaway fund – has confirmed that we were right.

Looking at the landscape, I am observing changes in the attitude of the media and others about the direction for gold. This market has been mostly under the radar of mainstream media; despite its unparalleled performance, gold was not considered a mainstream alternative for investment dollars. You could think of the past decade as a "stealth" bull run.

We seem to be entering a new phase where a much wider population of investors is now aware of what's been happening in gold. Evidence abounds, including a recent Gallup poll that, for the first time, included gold as an option to its question of what is the best long-term investment, and it was the most popular.

In addition, CNBC is airing an 11-part report called The Golden Age of Gold, and Fidelity brokerage now offers physical gold and silver, something unheard of for a firm that thrives on mutual funds.

These and many others are mainstream sources that would rarely discuss gold in years past, and if they did discuss it, it was derisively. Their arrival on the scene raises the question if we are at the point of euphoria where there is too much interest in gold. Yes, we could have a pullback from this impressive rise again to $1,900, but I don't think we are close to the end of the golden bull.

Many people I know keep asking the question whether it is too late to join the game. I think a better interpretation is that we are moving from the stage of stealth increase in price toward the final stage of mainstream involvement that will bring wider participation and even higher prices. Before this is over, we will see a true mania in gold, and prices will soar.

Which begs the question, by how much?

The Long-Term Case for Gold

Given that the stars are lining up for gold to continue on the path of resuming its important role as a monetary metal – and given the almost certain collapse in the fiat currency systems that is heralding a return to that role – it is entirely possible that gold could rise at the same rate in the next decade as it has in the last decade.

Therefore, using the same growth rate and extending the gold price as a straight line on a semi-log curve, we can come to the resulting price at the end of the decade. Under this projection, by 2021 the dotted line rises from today's $1,825 to $12,500. (More detail on the method is contained in my book Profiting from the World's Economic Crisis in Chapter 15 on gold.)

The increases due to price inflation and the flight from fiat currencies to gold are combined in the above chart. I think price inflation has been relatively low in the last decade but will certainly rise going forward.

To reflect my forecast for higher price inflation, I separated the two components by calculating the rise in the real price of gold since 2001 and projecting that forward. I then projected a rise in CPI that eventually matches the rise in the inflationary 1970s, when it ultimately reached 14%, and then applied that data to the real price of gold, for a combined projection that is much higher. You’ll see it below as the dotted line with a small curve upward for the increasing inflation that I expect over the decade. The result: gold could reach $24,000 by 2021, a decade from now.

This fits with my scenario of escalating loss of confidence in the dollar and the preference for gold that will be the fallout from continuing huge government deficits.

The chart below establishes the case for the CPI to reach the same 14% level that it peaked at in 1980. It shows both the CPI and gold annual percent changes. The correlation is obvious in the 1970s. The projection for a gradual rising CPI used in the above chart is specified in the rising line after 2011:

This confirms the historical sensibility for a 14% CPI for the more complex two-part analysis, but it is not the only method for calculating a scenario for $24,000 gold.

If gold rose at the rate it did in the 1970s, it would rise well above $30,000 over the coming decade. A visual of that projection is shown in the graph below.

The dashed line on the left shows the fit to the rise from 1971 to 1981 at a bit over 30% per year. Applying that rate of increase to the current price for the decade ahead, as in the dashed line on the right side of the graph, we get to a price of $39,000.

Of course, reality is always more complex than a straight line on a semi-log graph; for example, in the 1970s there was a big pullback in the middle when the first oil shock slowed the economy and disrupted the trend. Also, the 1970s were playing catch-up for gold being fixed to the dollar ever since Roosevelt's hike of the price to $32 in 1934. The point is not to conclude that this is a prediction made with great precision but rather that gold's amazing price acceleration over the past ten years has historical precedent, and much greater gains are certainly not out of the question.

Ultimately, the probability that we will see the sort of projections discussed here will depend on whether the loss of confidence in the dollar going forward will match or even exceed what happened then. Given that things are much worse today than they were back then, I think that is an entirely reasonable scenario, which makes the astounding headline number a very real possibility.

The models are summarized in the following table indicating the gold $/oz expected:

  Dec 2011 Dec 2012 Dec 2021
Simple 2001 to 2011 Growth Extended
Real Gold 2001 to 2011 Growth + CPI Rise to 14%
1971 to 1981 Growth Applied to Next Decade


I consider the rising CPI model, highlighted above as the middle case, to be the more likely one, because I expect continued loss of confidence in the dollar over the decade from the spending patterns, out-of-control deficits and Fed actions.

The seasonal aspect of gold investing gives a strong upward bias for the fall season that is not included in these models, so I think a $2,000 prediction for the end of 2011 is a sensible uplift to the short-term prediction.

My projection of $2,500/oz for 2012 represents a 25% increase next year, just modestly above the rises of recent years. In other words, for these predictions to come to pass it does not require an extreme event or major new disruption. The extension for 10 years could easily be much less, or much higher, as the scenarios indicate.

Calibrating the Prediction

I predicted $1,800/oz for the end of 2011 at the beginning of the year. (We started the year at $1,421, so this was an increase of 27%.) For reference, the table below summarizes the view from a variety of well-known sources, which were all lower. My $1,800 was the outlier on the high side.

Gold Price Predictions from Last Year  
  Gold 2011
Morgan Stanley
Goldman Sachs
Society General
BNP Parabas
Barclays (Q3)
Bank of America
(Source Reuters)
Bud Conrad


Predictions help us understand the future, even though they are necessarily fraught with speculation and error. Be cautioned that nobody knows the future precisely, but here I have divulged my methods so you can see how I came to these estimates. Use them with your own judgment.

My conclusion is that we face very serious financial problems ahead. The situation is far more out of control than any previously faced in the United States. I see no way to ever pay off the government debt, and Congress has shown itself incompetent in all things, but especially in applying the brakes to soaring deficits.

Elsewhere, the Federal Reserve has already indicated that it plans to abandon the dollar in favor of printing new money to support the economy and the banks. The combination of both doesn't bode well for the survival of the dollar.

My fear is that the situation will turn out to be much worse than the historically projected trends referenced above, with the price of gold escalating well beyond the numbers shown. So as we go forward, you can use these benchmarks to see whether we remain on a trajectory to significantly higher gold prices.

Of course, if confidence in the fiat currencies erodes to the point approaching failure, the value of gold denominated in worthless paper approaches incalculable numbers – Zimbabwe-like numbers that would be meaningless.

Summed up, until there are fundamental changes in government fiscal and monetary policies – and a recognition that the sovereign debt is unpayable and therefore needs to be restructured – there is no reason to fear gold pullbacks and every reason to expect even more positive returns in the gold mining stocks that are still catching up to the rapid gold rise.

Even higher prices than mentioned here are possible from the flight to safety out of the euro, the seasonal rise into the new year, and the accelerating action of gold from a shift in sentiment of the investment public to a relatively small market. Gold is by far the best "answer," and now is still the best time to invest.


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Tue, 11/22/2011 - 22:04 | 1905074 Cognitive Dissonance
Cognitive Dissonance's picture

Last paragraph.

"Even higher prices than mentioned here are possible from the flight to safety out of the euro, the seasonal rise into the new year, and the accelerating action of gold from a shift in sentiment of the investment public to a relatively small market. Gold is by far the best "answer," and now is still the best time to invest."

I think my confirmation bias has just been stimulated.

Was it as good for you as it was for me?

Tue, 11/22/2011 - 22:09 | 1905099 paarsons
paarsons's picture

Everything with gold going forward is going to depend on Europe and interest rates.

If we go into a deflationary cycle, the gold bugs are screwed.

But what do I know?

Tue, 11/22/2011 - 22:15 | 1905118 I think I need ...
I think I need to buy a gun's picture

thats bullshit,,,,,so what your saying is my dad will be rich from his federal pension/social security because gas will drop to $2.00 and he'll have PLEENNTTYYY of money to travel the world with right?


We are next after Europe buy my guess is they will catch it before that happens and revalue the supply........

Tue, 11/22/2011 - 22:29 | 1905176 He_Who Carried ...
He_Who Carried The Sun's picture

Gold? Who the fuck cares about that shiny piece of useless rock?

Can you eat it, can you put it in to your gas tank?

I invest our money in companies where people actually work hard to earn a living. The institution I work for entirely agrees...

Timing and Patience are key...

Tue, 11/22/2011 - 22:34 | 1905199 flacon
flacon's picture



When you first came out with your blog, I used to read it. I liked it. But then after a few days I was questioning some things you said. And now I have to question if you yourself are Lloyd Blankfein fucking himself... 


What on earth are you smoking? Of course we are about to enter a hyperDEflationary collapse, and that is the best time to own GOLD AND SILVER. There is no "out" for bankers in a hyperDEflationary collapse, and that is why they ALWAYS PRINT MORE MONEY, which isn't really hyperinflation, since we already had hyperinflation, that is CURRENCY DESTRUCTION. 


I think it's advisable for everyone to own SOME paper cash to hold them over for a few months as the iPress is lubricated with extra terrabytes, but seriously... what's up with you?

Tue, 11/22/2011 - 22:40 | 1905229 JW n FL
JW n FL's picture

The SWISS have Printed 300% + in 2011.

We have Printed? well I'd rather not say how much..


and to answer your question..



N... O... SPELLS NO!

Gold does NOT! cost any more than it used too.

Paper Money is just Worth! LESS!!


Now if you can NOT! figure out the facts with the information provided.. You should hurry and go Vote for whoever "Your Gut" tells You too Vote! For!!


Ignorance is Bliss!

Stupidity is Heaven!!


you (nor I) can fix stupid.







Tue, 11/22/2011 - 23:09 | 1905353 flacon
flacon's picture

Please watch this video. Very important (4 mins): 
A timetable for collapse: After Christmas?


It's possible that M(other) F(#$%$R) Global was a COMEX default.... seize the assets, don't deliver... and it's over... 

Tue, 11/22/2011 - 23:42 | 1905458 flacon
flacon's picture


The "currency supply" is M2, NOT M0. But M2 has not yet been MONETIZED. M2 has already started the process of hyperDEflating, which will wipe out banks, and since banks ARE governments it will wipe out governments. Just suppose one had the God-power to iPrint more money, then one could save the banks/governments while destroying the currency. That is what is happening. We already had hyperinflation - where do you think $1.4 Q.U.A.D.-RILLION of derivatives comes from? THAT is hyperinflation. The printing of money is to stave off the hyperDEflation. 


It's partly a matter of symantics and word definitions. What most people think of hyperinflation (printing like mad) is not actually true hyperinflation - that is CURRENCY DESTRUCTION which happens AFTER hyperinflation has already happened, which it has. QUADRILLIONS. There aren't enough planets, stars, galaxies to pay that off, so the only logical thing to do is to DESTROY THE MEASURE OF WEALTH, which is the US Dollar. 


Don't worry when you hear me say that gold thrives in hyperDEflation, I am two steps ahead of most. In Germany when they were in the process of destroying their currency, they had TRILLION MARK NOTES, and the central planners said: "There is LESS MONEY NOW THAN WHEN WE STARTED PRINTING"!!!! OMG! READ THAT AGAIN! NOT ENOUGH MONEY... SO... PRINT MORE ZEROS AND MAKE MORE MONEY TO STOP HYPERDEFLATION!


Wed, 11/23/2011 - 00:04 | 1905495 flacon
flacon's picture

When it comes time to "sell your gold" (trade it in for real hyperdeflated assets, like a car or a house or whatever), just tell your bank branch manager to procure for you a tax exempt document from your country's tax collection agency. No capital gains taxes. At that time, what will a bank most covet, owning a car, or owning YOUR GOLD? They want your gold. So give it to them in exchange for their assets. You might even be so bold as to ask for them to pay YOU a tax at that time (discount for paying in gold). A 35% tax refund FROM YOUR BANK TO YOU wouldn't be too unreasonable to ask for. Don't you think that the "elite" will do this? There will be no capital gains taxes on giving your gold to the government (banks (one and the same)). Period. None!


(who makes the laws? The "lawmakers" do. Who are the "lawmakers"? They are the BANKS! "Give me control of a nation's money and I care not who makes the..... the what? THE LAWS!)


Do you think Bill Clinton will pay "capital gains taxes" when he comes to exchange his gold for real assets? HELL NO!



Bill Clinton: Going Off Gold Standard Is Cause of Financial Inequality



Wed, 11/23/2011 - 00:50 | 1905652 JW n FL
JW n FL's picture

Uploaded by RussiaToday on Nov 22, 2011

Watch the full Keiser Report E213 later today. Every week Max Keiser looks at all the scandal behind the financial news headlines. This week Max Keiser and co-host, Stacy Herbert, discuss the Koch Brothers and MF Global and Northern Rock and Richard Branson's blonde hair and big, shiny teeth. In the second half of the show, Max talks to independent radio journalist Richard Thomas about Occupy LSX, poll tax riots and financial apartheid.

KR on FB:


Wed, 11/23/2011 - 01:27 | 1905727 SGS
SGS's picture

Those nipples in that avatar are terrible.  holy FUCK!

Wed, 11/23/2011 - 00:08 | 1905541 GenXer
GenXer's picture

Celente is just angry because Corzine stole his gold.

Wed, 11/23/2011 - 00:16 | 1905571 Vic Vinegar
Vic Vinegar's picture

Celente is also angry because: the McRib didn't live up to the hype / Gossip Girl was on re-runs this week / he is a hypocrite who sells fear to the semi-washed fringe. 

Wed, 11/23/2011 - 00:31 | 1905621 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

I'm still trying to figure out what the hel Celente was doing trading futures.  I thought he was 'bout physical.  Shit....

Wed, 11/23/2011 - 05:04 | 1905918 Gief Gold Plox
Gief Gold Plox's picture

I am not entirely sure whether the EU all out crises can be efficiently subdued till christmas. I hope so as It means a few more pay-checks for gold purchase for me, but I doubt it.

Tue, 11/22/2011 - 23:45 | 1905479 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Gold does cost more.  It's production peaked a decade ago.  It's price is rising because its supply is decreasing.

Tue, 11/22/2011 - 23:51 | 1905491 Deadpool
Deadpool's picture

wrong. it grows about 2% a year...about same as population of Earth. an oz is an oz. it's the dollars that are losing value.

Wed, 11/23/2011 - 00:09 | 1905544 tmosley
tmosley's picture

Exactly.  Poak X idiots cant tell the difference between hard money and consumables.  Gold production could stop tomorrow and the effect would be minimal.

Wed, 11/23/2011 - 00:19 | 1905583 Deadpool
Deadpool's picture

silver is in decline and what comes out of the dirt gets used up in industry creating a wonderful supply demand imbalance for investment, but 100:1 leveraged COMEX price suppression hides that fact.

Wed, 11/23/2011 - 00:29 | 1905612 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Gold peaked production a decade ago.  It has had a bounce due to demand, but unless we break out, I am saying it peaked production.

Gold Production:

Tue, 11/22/2011 - 22:40 | 1905231 He_Who Carried ...
He_Who Carried The Sun's picture

Gold only works well in an inflationary and recklessly leveraged environment which we won't see again until this pile of shit is de-leveraged i.e. another 10 to 15 years depending on who gets it first regarding much needed austerity.

Gold is for those from yesteryear who still bet on QE3,4 and 5. Game over folks. Merkel will win which means austerity and de-leveraging and financial sanity will come back!

Central banks use Gold as some artificial stability anchor but that game won't last forever.

PM's are in for some rude awakening.....

Tue, 11/22/2011 - 22:48 | 1905267 flacon
flacon's picture

You know, I was outside smoking a cigarette, and I thought of all the houses in the world where there is a mortgage, and then I thought, where on earth will all the money come from to pay off all the mortgages, credit card bills, car loan payments, student payments, BOND HOLDERS PAYMENTS etc. if you look at M0, it has grown, but if you look at M2 it has hyperinflated. The problem is, you can't get a "PAID IN FULL" rubber stamp on your debts by BORROWING more money. You have to use M0. And there just isn't enough M0 to go around. They have to "iPrint" it.



Tue, 11/22/2011 - 22:52 | 1905294 He_Who Carried ...
He_Who Carried The Sun's picture

Relax. They'd have to declare a war on us the people. They won't as we're quite a force and they want to get re-elected as well...

Tue, 11/22/2011 - 23:48 | 1905485 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

So when gold doubled during the great depression, that was inflationary?  Get your facts straight and come back to the grown ups table when you do. 

Wed, 11/23/2011 - 00:43 | 1905638 Reese Bobby
Reese Bobby's picture

The kid is an idiot: "I invest our money in companies where people actually work hard to earn a living. The institution I work for entirely agrees..."

Now those are the words of an underling somewhere on the buy-side of finance.  The more junior they are the more important they think they are.  His type don't last in the business because nobody can teach them anything and they never learn from their mistakes.  Note he has been haunting this site long enough to learn a lot but his brain is impervious to the knowledge ZH offers.

But I grant you, he should STFU and try and learn something.  It's just not going to happen.

Wed, 11/23/2011 - 14:05 | 1907451 Robot Trader's ...
Robot Trader's brother's picture

I think he meant to say the institution where he lives....

Tue, 11/22/2011 - 22:47 | 1905271 SHEEPFUKKER

GLTU my friend. 

Tue, 11/22/2011 - 22:50 | 1905283 Tuco Benedicto ...
Tuco Benedicto Pacifico Juan Maria Ramirez's picture

How much do you make pimping for the New World Order.  I am sure your mother would be proud!

Tue, 11/22/2011 - 23:06 | 1905338 jeff montanye
jeff montanye's picture

you are mistaken, "callimmamman".  historically both gold and gold miners do well in deflationary periods with low real interest rates, following the ends of credit cycles.  the metal anticipates inflation by years.  see and  john hussman is currently over weighting gold stocks in his strategic portfolio.

Tue, 11/22/2011 - 23:14 | 1905375 malek
malek's picture

Dream on!
And by the way, why don't you answer the question a few posts up:

so what your saying is my dad will be rich from his federal pension/social security because gas will drop to $2.00 and he'll have PLEENNTTYYY of money to travel the world with right?

Tue, 11/22/2011 - 23:22 | 1905399 Bansters-in-my-...
Bansters-in-my- feces's picture

Hey FuckTard...

Banks use Gold because of "tradition".

Don't you listen to your leaders,,,?

Tue, 11/22/2011 - 23:46 | 1905481 tiger7905
tiger7905's picture

It seems Sprott is shaking things up by buying $1.5 billion in silver.

Wed, 11/23/2011 - 00:02 | 1905526 Toxicosis
Toxicosis's picture

And this projection of "financial sanity" is based upon what intensive analysis of the global debt issues you have provided to us here at Zero Hedge?  Central banks use "fiat" as artifical stability, not gold.  If gold was presently used, why would they print dollars?


Either you're ignorant, stupid, incompetent, or all three.  I'm vouching for all of them as you're so out of the loop or just entirely sociopathic you can't tell asshole from your elbow.

Wed, 11/23/2011 - 00:11 | 1905550 tmosley
tmosley's picture

So you are saying gold will be crushed because this time will be different.

How uninsightful.

Wed, 11/23/2011 - 00:23 | 1905591 FutureShock
FutureShock's picture

Yeah well read your first line, we have hardly seen the results of the recklessly leveraged environment. The Fed covered up 2008 and we have every state pension plan and US credit default swaps leveraged in banks plust more leverage in europe like no one has ever seen. Merkel is in a loose loose deal and Germany gets hosed either way, it is just how bad. Will they leave the Euro or will the PIIGS.

There never has been fincancial sanity, the entire fractional system is ponzi dependent on growth and the debt is not fixable. Gold could be up huge in 12 months or another 5 years. Creative can kicking is gold's only true enemy that can win battles but never the war.




Wed, 11/23/2011 - 00:23 | 1905592 FutureShock
FutureShock's picture



Wed, 11/23/2011 - 09:20 | 1906255 Calmyourself
Calmyourself's picture

5,000 years of history as the only stable "money" and central banks use it as a

"artificial stability anchor"

Nice boobs but you have to leave them alone once in a while and read a book..



Tue, 11/22/2011 - 22:47 | 1905274 Tuco Benedicto ...
Tuco Benedicto Pacifico Juan Maria Ramirez's picture

Agreed Mr. P!  In 98 years the privately held federal reserve has caused a 98% devaluation in the fiat federal reserve note.  Even some of the paper pushers who visit this site can see that a trend has been established here. 

Yes, keep some green fiat around in the event of bank runs and or a brief deflationary spiral, but there is no doubt the final two percentage points will be taken out in time probably within the next few years if not sooner.  Thereafter, inflation will rule the day and the today's paper pushers will be huddling in pathetic groups in the woods building camp fires using federal reserve notes as kindling!

Wed, 11/23/2011 - 01:55 | 1905772 Freddie
Freddie's picture

LOL!  I said the same thing last night.  I bet this prick is Lloyd the squid of Satan. 


You nailed it flacon - currency destruction.

Gold will still be gold while paper will be worthless.

Tue, 11/22/2011 - 22:37 | 1905214 Tuco Benedicto ...
Tuco Benedicto Pacifico Juan Maria Ramirez's picture

Thank you for not buying metals so the rest of us who have common sense have more to buy.

Wed, 11/23/2011 - 00:06 | 1905537 Toxicosis
Toxicosis's picture

Shills and trolls buy metals.  Their paid to be sociopathic predators on websites such as this.  But if it's not a "paper" shill than yes the more metals for us the better.

Tue, 11/22/2011 - 22:38 | 1905218 flacon
flacon's picture

He_Who Carried,

Are you some sort of seahorse? Pregnant male?


In a time of hyperDEflation, which we are about to experience, the best asset is gold. DEFLATION is mathematically impossible to stop, no matter how much iDollars they inject into the system. GOLD ALWAYS DEFAULTS TO REAL ASSET IN A HYPERDEFLATION SCENARIO LIKE WE ARE ABOUT TO ENTER. The useless task of PRINTING MONEY is not actually hyperinflation, it is CURRENCY DESTRUCTION. Hyperinflation already happened.... NOTHING WILL STOP HYPERDEFLATION. 

Tue, 11/22/2011 - 22:46 | 1905268 He_Who Carried ...
He_Who Carried The Sun's picture

Hyperinflation? What are you talking about?

When is the last time YOU paid 200.000 US$ for a piece of bread?

Real deflation is just about to start and when it ends, bread will be sold for a nickel again or whatever our currency will be called by then...

Its going to be awful, but we can not do anything about it, else we'll burn our children's future. We've had our party from the late 70ies to the nineties. Now its time to pay for that and de-leverage.

Tue, 11/22/2011 - 22:52 | 1905295 SHEEPFUKKER

My friend, and exactly how will that 15 trillion dollar debt get paid off in your superdeflationary world? Superdeflation to me means millions more people lose their jobs and get foreclosed upon which will result in a hyperbolic rise in the national debt.  

Tue, 11/22/2011 - 22:58 | 1905327 He_Who Carried ...
He_Who Carried The Sun's picture

Exactly that is what will happen. Did you see them care so far? They did not care shit. All they came up with was some QE stupidity which helped some bankster to survive but sent thousands in to tent cities. Did they care? There is no other way, look at what Canada did in the nineties. They were lucky as Chinese demand was picking up and the world needed their commodities. We must stop fighting wars in idiotic corners of this world an pay zillions to Halliburton and the 6th fleet and come to our senses!

Tue, 11/22/2011 - 23:06 | 1905359 SHEEPFUKKER

So plunging home prices, OFFICIAL unemployment at say 20%, and skyrocketing national debt to say, i dunno, 25 trillion? That is your scenario? The civil war will start long before that happens my friend. 

Tue, 11/22/2011 - 23:31 | 1905427 He_Who Carried ...
He_Who Carried The Sun's picture

Both paths are quite scary, agreed!

Tue, 11/22/2011 - 23:32 | 1905434 SHEEPFUKKER

Finally something I agree with you. 

Tue, 11/22/2011 - 23:37 | 1905454 He_Who Carried ...
He_Who Carried The Sun's picture

You needed that, eh? I knew it!  ;-)

Wed, 11/23/2011 - 14:07 | 1907457 Robot Trader's ...
Robot Trader's brother's picture

I look at the nipples and then know to hit the red triangle......

Don't change the avatar, please.......

Tue, 11/22/2011 - 23:36 | 1905449 flacon
flacon's picture

The "currency supply" is M2, NOT M0. But M2 has not yet been MONETIZED. M2 has already started the process of hyperDEflating, which will wipe out banks, and since banks ARE governments it will wipe out governments. Just suppose one had the God-power to iPrint more money, then one could save the banks/governments while destroying the currency. That is what is happening. We already had hyperinflation - where do you think 1.4 QUADRILLION of derivatives comes from? THAT is hyperinflation. The printing of money is to stave off the hyperDEflation. 


It's partly a matter of symantics and word definitions. What most people think of hyperinflation (printing like mad) is not actually true hyperinflation - that is CURRENCY DESTRUCTION which happens AFTER hyperinflation has already happened, which it has. QUADRILLIONS. There aren't enough planets, stars, galaxies to pay that off, so the only logical thing to do is to DESTROY THE MEASURE OF WEALTH, which is the US Dollar. 


Don't worry when you hear me say that gold thrives in hyperDEflation, I am two steps ahead of most. In Germany when they were in the process of destroying their currency, they had TRILLION MARK NOTES, and the central planners said: "There is LESS MONEY NOW THAN WHEN WE STARTED PRINTING"!!!! OMG! READ THAT AGAIN! 

Wed, 11/23/2011 - 05:21 | 1905926 ConfederateH
ConfederateH's picture

Why don't you learn control your panic and hysteria and lay off of the bold for once?

Wed, 11/23/2011 - 00:09 | 1905546 Toxicosis
Toxicosis's picture

When is the last time YOU paid 200.000 US$ for a piece of bread?


Not yet, but if you want a time frame in the future, I'll get out my crystal ball and take a crack at it.

Wed, 11/23/2011 - 00:13 | 1905562 tmosley
tmosley's picture

Now it's "it hasn't happened, so it can't happen".

Nice normalcy bias.

Tue, 11/22/2011 - 22:49 | 1905279 I think I need ...
I think I need to buy a gun's picture

the trolls are out tonight in FULL Effect watch out!!!!

Tue, 11/22/2011 - 23:06 | 1905357 TideFighter
TideFighter's picture

Agreed. And our ranks will grow. Disregard postings from akak, whose compiled postings into a word cloud looks exactly like a chicken's ass.

Tue, 11/22/2011 - 23:14 | 1905374 Bansters-in-my-...
Bansters-in-my- feces's picture



You are a Fucking idiot..

How do your Federal Reserve Bank Notes taste...?


Tue, 11/22/2011 - 23:35 | 1905446 He_Who Carried ...
He_Who Carried The Sun's picture

Pipe down baby. We will measure who won this game in about say 5 or 7 years...

Wed, 11/23/2011 - 00:14 | 1905566 tmosley
tmosley's picture

You said that five or seven years ago.  Looks like the inflationists won to me.

Tue, 11/22/2011 - 23:38 | 1905456 augmister
augmister's picture

God told Lot not to look back at Sodom & Gomorah but you, like his daughter wouldn't listen... dumb shits!   Bags of salt!

Wed, 11/23/2011 - 00:46 | 1905643 delacroix
delacroix's picture

 I thought that was his wife  (thanks God, she wouldn't listen to me either)

Tue, 11/22/2011 - 23:46 | 1905482 Deadpool
Deadpool's picture

hmmm, do you eat your cash or put it in your tank? no, you convert it to food and fuel because the oil company and farmers still accept it. Think they'd accept a drachma or weimar mark? for now the system is still in place but soon they won't take your toilet paper and you'll use it to heat your home maybe next winter....and those with gold will have purchasing power to buy, hmmm, let me think, ummmm, food and fuel. Either that or it's Road Warrior time, baby.

Tue, 11/22/2011 - 23:50 | 1905490 Azwethinkweiz
Azwethinkweiz's picture

Can you eat dollars? Can you eat treasuries? When will you morons stop with this "you can't eat gold!" horse manure?

Wed, 11/23/2011 - 00:13 | 1905564 UP Forester
UP Forester's picture

When they're eating road-apples?

Wed, 11/23/2011 - 10:46 | 1906590 tarsubil
tarsubil's picture

See you later.

Tue, 11/22/2011 - 22:45 | 1905257 jeff montanye
jeff montanye's picture

fwiw, the thirties saw a one time increase in bullion price of some 60%, about a year after the waterfall (80%) equity bear market had bottomed (summer of '32).  up to then gold miners were up to sideways with high volatility since '29.  upon the bounce of the falling knife, gold stocks went up 500% plus over the next five years.

imo the beauty is that one doesn't have to try to buy at the bottom.  one can own with some confidence even in the equity bear market and possibly even make a little money on the down cycle, as long as one can take the volatility and isn't investing funds needed for expenses.  

again imo, a difference in the order of magnitude by which the current move in gold bullion exceeds that of the closest historical parallel more likely changes the size of the move in the miners rather than its pattern.

Tue, 11/22/2011 - 23:40 | 1905463 He_Who Carried ...
He_Who Carried The Sun's picture

Just for how long do you think this will go on? Where is counter intuition in all this? Do you really believe the status quo and current policies will sustain an "endless" rise in PM? Its like those lemmings then...

What do we have a brain for?

Tue, 11/22/2011 - 23:54 | 1905499 Deadpool
Deadpool's picture

it'll peak. about double from here. the world swallowed the reserve currency hook like and stinker and now the system has to be remade and gold will be apart of it at much higher price.

Wed, 11/23/2011 - 00:13 | 1905563 Toxicosis
Toxicosis's picture

So you must think that centralized government and centralized banking will exist once this clusterfuck really gets going do ya?  Paper money is owned by the banking system.  Gold and silver instead is owned by individuals, with no debt to a central authority or planner.  Perhaps we will wait for what system that the "PEOPLE" will choose.  I choose unprintable, uncontrolled central planned money/currency.  If you love fascism you can take the fiat.

Wed, 11/23/2011 - 00:22 | 1905589 He_Who Carried ...
He_Who Carried The Sun's picture

Um, and then? When did PM owners get disposessed of the "precious" again? And what happened after?

Imo the only real safe haven that ever existed is land. Look at the Duke of Westminster. That family stopped 'working' in the 18th century... ;-)

Wed, 11/23/2011 - 00:32 | 1905622 Toxicosis
Toxicosis's picture

PM owners were dispossessed but not all of them.  Do you really think that they all gave up their coins and bars to the government years back.  No, and not likely.  What was in bank safety deposit boxes, yes and maybe.  But in their homes, hidden away, now that's another story.

Land is great, other resources to work the land which may require either money or barter will be all that is eventually left.  Centralized government makes you pay fiat taxes on that land and we'd be better off without it.  You can do and commit to what you'd like, but the choice of federal reserve system over control of my own money is a no-brainer in a world short on resources and long on useless government.

Wed, 11/23/2011 - 04:52 | 1905907 mccoyspace
mccoyspace's picture

Any asset can be seized with sufficient force and sufficient 'cause.' The State has a well-honed system for appropriating land. It's called Eminent Domain.

Wed, 11/23/2011 - 09:27 | 1906271 Calmyourself
Calmyourself's picture

Land is a safe haven huh, you should see the property tax bill rise in falling market values environment.  Value down 25% tax bill up 10%, safe haven my ass, perhaps if you have serfs tilling the land and oh yeah you happen to be royalty..  nice tits, little brain..

Wed, 11/23/2011 - 00:16 | 1905570 tmosley
tmosley's picture

I guess you think the sun revolves around the Earth, too.

Here's a hint--it's not the price of gold that is rising, it's the dollar that is falling, and deflationary forces are in full effect, but in terms of GOLD, not pretty little green pictures.

Tue, 11/22/2011 - 22:51 | 1905292 Spitzer
Spitzer's picture

"peerrrson" just needs to show an example of a debtor nations currency appreciating as its economy imploded.

Tue, 11/22/2011 - 22:21 | 1905142 phyuckyiu
phyuckyiu's picture

If deflation comes, pm's will go down the slowest. Deflation is game over for one world govt., since it makes countries protectionist, ain't gonna happen.

Tue, 11/22/2011 - 22:28 | 1905173 Carlyle Groupie
Carlyle Groupie's picture

If deflation comes with a major currency crisis, pm will disconnect and the disconnection panic will set in sending them even higher.

3674.00 is our major entry point for Au.

Tue, 11/22/2011 - 22:40 | 1905234 Nate H
Nate H's picture

you have a buy stop at $3674???   wha???

Tue, 11/22/2011 - 22:43 | 1905247 SilverIsKing
SilverIsKing's picture

What do you mean by 3674 is your major entry point for Au? That's when you start buying? LOL!

Tue, 11/22/2011 - 22:59 | 1905331 Carlyle Groupie
Carlyle Groupie's picture

Laugh all you want. But do your homework.

$3674 is our 'all in' entry point where we expect to double our money in the shortest time period while all else is deflating.

Tue, 11/22/2011 - 23:28 | 1905416 SHEEPFUKKER

Wait until it doubles in price AGAIN, then buy.  What investment world do you live in?

Tue, 11/22/2011 - 23:46 | 1905475 Carlyle Groupie
Carlyle Groupie's picture

I'm not here to explain lattered risk concepts that most would never comprehend.

It's obvious by all the NEGATIVE points I'm getting.

Boo hooo. I'm going to cry now.

Tue, 11/22/2011 - 23:55 | 1905502 Vic Vinegar
Vic Vinegar's picture

Don't cry.  Just break it down for us.

Wed, 11/23/2011 - 02:13 | 1905803 Freddie
Freddie's picture

I am not sure what he means but there will probably be some point where if you have not dumped paper for physical gold/silver then it is game over. 

My guess is once we hit that point - The muslim from Kenya will start confiscating gold and they will roll out the new dollar or amereo that will backed by gold and mexican cartel drugs.

If you know a Democrat - thank them.  Better yet when the SHTF - you know what to do.  


Wed, 11/23/2011 - 03:29 | 1905855 Vic Vinegar
Vic Vinegar's picture

The muslim from Kenya will start confiscating gold

If you say so.  But remember that...

  • The failed vet student from Texas
  • The magic underwear wearer from Michigan
  • The corndog eater from Minnesota
  • The cancer-strickren-wife-dumper from Georgia
  • The non-Cuban-speaking Fed governor from Georgia 

...will all do the same.  Seems like Ron Paul is your only choice, buddy!

Wed, 11/23/2011 - 09:30 | 1906284 Calmyourself
Calmyourself's picture

He would but it's "lattered" or is that laddered and anyway you wouldn't understand it and he is too busy crying..

Wed, 11/23/2011 - 01:50 | 1905761 SilverIsKing
SilverIsKing's picture

There's no crying in investing. It's laddered risk but regardless of the spelling, you apparently feel that 3674 is the magic breakout number for gold, or stated another way, a magic breakdown point for the USD.

If you have a view as to whether gold will get to 3674 in the first place, please share.

Wed, 11/23/2011 - 00:27 | 1905605 Deadpool
Deadpool's picture

this could win the prize for most fully retarded post of all time. let's watch another 100% tacked onto the price (up from 700%) before we go all in. Did you top tick Netflix too or are you waiting for $600 to go all in?

Tue, 11/22/2011 - 23:49 | 1905487 He_Who Carried ...
He_Who Carried The Sun's picture

The funny thing about you PM-lovers is that you have a "valid" and oh-so-plausible scenario for both deflationary and inflationary environments. Something's got to give here methinks... ;-)

Wed, 11/23/2011 - 00:00 | 1905508 Deadpool
Deadpool's picture

not contradictory at all. your confusing base metals for industry with monetary metals for purchasing power. they aren't called "precious" for nothing. When copper costs $1bil US$ per ton, but only $100 Renimbi or Aussie $ you'll know the differance between deflation and inflation.

Wed, 11/23/2011 - 00:17 | 1905573 Toxicosis
Toxicosis's picture

No, it's the destruction of the currency or currencies worldwide that will affect the upward trajectory of gold and silver.  Deflation/inflation will be a side show as in both no-one has enough fiat currency to spend anyway.  Perhaps your boobies can save us.  Please help us oh bra-less wonder!!!!

Wed, 11/23/2011 - 00:17 | 1905577 tmosley
tmosley's picture

Yes, study of history will inform the likely outcomes of current policy, which is an exact repeat of what has happened dozens if not hundreds of times in the past.

Wed, 11/23/2011 - 00:26 | 1905603 He_Who Carried ...
He_Who Carried The Sun's picture

I find this really implausible. We live in the smartphone era. Just how fast can anyone convert their stoopid US toiletpaper in to swissie, krona etc... They'd have to declare conversion illegal but by then this will be a dictatorship!

Wed, 11/23/2011 - 02:39 | 1905828 lemonobrien
lemonobrien's picture

apmex takes like five seconds over a smart phone.

Wed, 11/23/2011 - 05:02 | 1905912 mccoyspace
mccoyspace's picture

Currency controls are one of the techniques of financial repression (and I mean that term in the technical sense). It is how they will pay off their massive debt without causing the civil war you mentioned above. And the basket of techniques that fall under the name of financial repression are fundamentally inflationary.

Wed, 11/23/2011 - 00:25 | 1905594 GenXer
GenXer's picture

Maybe I have simple logic. But isn't debt free currency the best thing to hold during an acute deflationary period (ie market crash)?

Seems to me the real profiteers in 1929 used their paper money after the crash and bought the index, real estate and gold. During the depression period asset prices revalued as peoples concerns were more to do with the essentials of life rather than the latest and greatest products.

Agriculture and gold were at that point in higher demand, thus they did well more that decade.

I have plenty of dry powder and drive myself nuts seeing whether this is going to head inflationary or deflationary. At the moment it seems like Europe lead by Germany is almost in a state of "the game is up". They don't seem to have the will to try and sell the idea of printing to the public as a solution with any gusto.

Maybe Fabers 25% PM, 25% cash, 25% real estate and 25% equities is the go.

Wed, 11/23/2011 - 00:30 | 1905616 Deadpool
Deadpool's picture

that's almost the Permanent Portfolio, but they use Swiss Francs...oops. Best bet is be poor; let the gov't provide.

Tue, 11/22/2011 - 22:21 | 1905143 mayhem_korner
mayhem_korner's picture



Flawed logic.  Gold in paper form is masquerading as an "asset" to which you ascribe the potential of isn't.  It is a store of wealth that will be used to acquire huge swaths of deflated assets down the road.

But what do I know?

Double-down arrow - one for the logic, one for the marketing.

Tue, 11/22/2011 - 22:33 | 1905193 paarsons
paarsons's picture

I heard all this bullshit when I was a kid back in the late seventies.

Gold was sky-rocketing.

Oil was going through the roof.

Science had us all scared about a fucking ice-age.

Then Volker came and did the right thing.

He jacked-up rates.

The world slowly went back to normal.

It'll happen again.  History always repeats itself.

Tue, 11/22/2011 - 22:36 | 1905208 High Plains Drifter
High Plains Drifter's picture

volker did what he was told just like bernanke does.   they were just not ready to collapse the world economy yet. but maybe now..........who knows.

Tue, 11/22/2011 - 22:40 | 1905217 mayhem_korner
mayhem_korner's picture




OK - now that you've identified yourself as a troll, I'll bite, but just this once.

Pull out a calculator (I know you can't count past ten without removing your shoes) and do the math on the impact of, say, a 500 or 600 bps rise in interest on the $15T of outstanding US Debt.  Just do it on the portion maturing in the next 12 months.  The answer you get is...wait for it...ITALY!

We're not in the 1970s, dood.  I'm pretty sure Volcker took one look at the numbers now and bought some land in a far away place...

Tue, 11/22/2011 - 23:04 | 1905349 Papasmurf
Papasmurf's picture

I think Jon Corzine did too.

Wed, 11/23/2011 - 00:01 | 1905521 Deadpool
Deadpool's picture


Wed, 11/23/2011 - 00:03 | 1905529 Deadpool
Deadpool's picture

what else happend in 70's, hmm, Elvis died, that sucked. Star Wars came out, that was cool. Nixon closed the gold window...HOLY SHIT! maybe that lead to fiat currency backed by nothing printed into existance at biblical tower of bable rates leading to today? nah. 70's rocked.

Wed, 11/23/2011 - 09:12 | 1906237 mayhem_korner
mayhem_korner's picture




Tue, 11/22/2011 - 22:45 | 1905262 Caviar Emptor
Caviar Emptor's picture

This ain't no 1970s. 

A few key differences: GDP growth was soaring compared with now. Median incomes were rising fast (why supplier-siders waged a war against it) and now they've declined 28% since 2000. Unemployment was not near these levels and all jobs lost were regained within 20 months (we're no where near after 46). We had big manufacturing and industry which has been lost. US companies made money in the US, since 2000 multinationals have added 2 million job abroad and shed nearly a million in the US. And as far as peak oil, in the 1970s they were right: US oil production peaked in the year 1970 and has never recovered despite boomlets

Tue, 11/22/2011 - 23:07 | 1905362 fonzanoon
fonzanoon's picture

Yep they will jack up those rates. My ass. If that is your argument then what are they waiting for? ZIRP until 2013. Why? Jack em up now. Lets pay back that 15 trillion at 5%. Make it 7% so I can get a respectable CD.

Tue, 11/22/2011 - 23:01 | 1905343 BigJim
BigJim's picture

So what happens to rolling over the $15T US debt if rates get jacked up to 7%, let alone 15%?

I'll tell you - the US defaults. That simply cannot be allowed to happen, so they will print. 


Wed, 11/23/2011 - 05:49 | 1905951 EasterBunny
EasterBunny's picture

I'm not saying that a rate hike would be manageable, but the coupon on existing long term debt wouldn't change. Any new UST and bills (partly to refinance the roll overs) will certainly have to be at a higher rate. So there wouldn't be a massive immediate hit to interest payments for the full $15tril...

Tue, 11/22/2011 - 23:05 | 1905351 Lord Koos
Lord Koos's picture

In the late 70s it wasn't peak oil time, and America still had lots of decent jobs.

Tue, 11/22/2011 - 23:05 | 1905356 aphlaque_duck
aphlaque_duck's picture

The difference then: we made a deal and got more oil.

Who will be our Saudia Arabia this time around?

Tue, 11/22/2011 - 23:17 | 1905388 tmosley
tmosley's picture

So in your mind being the world's biggest creditor is the same thing as being the world's biggest debtor in terms of ability to raise interest rates without setting off a financial nuke in every bank branch in America?

Call me back when interest rates are 10% and the US hasn't sunk into the 7th circle of Hell under the weight of it's self imposed debt burden.

Wed, 11/23/2011 - 00:05 | 1905534 Deadpool
Deadpool's picture

it only took 6% for Italy, France, Spain to go Defcon 5. 10% is Armageddon.

Tue, 11/22/2011 - 23:31 | 1905428 SHEEPFUKKER

My man, how will the debt get paid off if interest rates go up to where they should be?  Sure, if the debt were low. But @ 15 trill?  So suddenly the Bernanke will raise rates after all this ZIRP madness? Yeah, seems reasonable. lol

Tue, 11/22/2011 - 22:34 | 1905201 Tuco Benedicto ...
Tuco Benedicto Pacifico Juan Maria Ramirez's picture

Not much, I am afraid to say.  Metals will hold their purchasing power whether in a deflationary or inflationary cycle.  Nominal values mean shit to a tree.  Purchasing power is king!

Wed, 11/23/2011 - 01:20 | 1905278 eaglefalcon
eaglefalcon's picture



Deflation cycle?  If you smoke weed, make sure you get the good stuff.


Inflation has already happened with the 3-fold increase in m1 money supply within the last 3 years.  Banks and big corporations are holding the newly printed FRNs for the time being, resulting in low velocity.  The fuse for hyperinflation can be lit at any moment.  If any of them realises that spending their money on some real stuff makes more sense than hoarding, booom!  If the Chinese and Japanese need some cash to cover their own ass, and choose to dump some treasuries, pooof!


Interest rate is a moot point.  The Fed has lost all its cool toys including reserve ratio (after overleveraging) and interest rate (after ZIRP).  The printing press is the only remaining tool.  


Have you noticed that FOMC meeting minutes are gradually running out of substance and options?  At this point they might as well let bunch of chimpanzees run the FED and achieve the same result, as long as they train the chimps to push the green "print" button

Stop bluffing and start printing already  Benny


Tue, 11/22/2011 - 23:29 | 1905422 Axenolith
Axenolith's picture

If we go into a deflationary cycle gold bugs are only screwed if they have a lot of debt.  The metal itself will maintain it's purchasing parity over time.  While there may be bursts of major asset deflation, I can't see the government lowering minimum wage barring a sudden economic epiphany and if they smell deflation and a cratering, they'll pay cogs $20+/hr to dig and fill holes to keep the meat human economy going...

Tue, 11/22/2011 - 23:32 | 1905430 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

If we go into a deflationary cycle, the gold bugs are screwed.

Gold does great in times of deflation.  We are currently in a time of deflation ie housing.  Gold continues to outperform.

I know it is confusing because we have inflation too, but throw out your perceptions.  There is massive deflation, and inflation.  Keiser put it best:  it is blobflation.

In this environment, gold is the only investment there is.

Wed, 11/23/2011 - 00:54 | 1905665 SRSrocco
SRSrocco's picture


Deflation is by far the most overused term in the media.  Anyone who thinks we could have deflation has taken the CENTRAL BANK PLAYBOOK....Hook, Line and Sinker.  Deflation is only possible in strong currency. 

I would like to remind the reader of the following:


COPPER = $.70 lb.

SILVER = $4.60 oz

GOLD = $310 oz


PRICE 2011

COPPER = $3.31 lb. (373% increase)

SILVER = $32.75 oz (612% increase)

GOLD = $1,700 oz (448% increase)

These metals should be a great deal higher.  The only reason they are not is due to the fact that US Treasuries have been back stopped by upwards of $100+ Trillion in Interest Rate Swaps.  The US Dollar is backed by US Treasuries which are backed by worthless Interest Rate Swaps.

Interest rates today are totally manipulated and completely worthless.  Anyone in paper assets at this time are either totally ignorant or completely insane.


Tue, 11/22/2011 - 22:32 | 1905192 Tuco Benedicto ...
Tuco Benedicto Pacifico Juan Maria Ramirez's picture

Yes, but what happened to the kiss on the forehead?

Tue, 11/22/2011 - 23:07 | 1905361 Turd Ferguson
Turd Ferguson's picture

Fuck. Let me save you the 10,000 words and the 21 charts. The answer to the question posed in the title is: Yes.

Tue, 11/22/2011 - 23:33 | 1905436 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

I appreciate it, but it was a pretty tedious article.  I think his point was- Bud called $1800 gold last year.

Good for you, Bud.

Wed, 11/23/2011 - 00:34 | 1905626 BidnessMan
BidnessMan's picture

Bud is a Harvard Business School grad - lots of numbers and charts to back up his assertion is part of the HBS DNA....

Wed, 11/23/2011 - 02:43 | 1905833 lemonobrien
lemonobrien's picture

this is why amerika is fucked.

Tue, 11/22/2011 - 23:16 | 1905384 yabyum
yabyum's picture


Wed, 11/23/2011 - 00:27 | 1905602 JohnG
JohnG's picture



CD. It is not confirmation bias.  It is math.

Math is provable; confirmation is moot.

Wed, 11/23/2011 - 00:28 | 1905609 GoldBricker
GoldBricker's picture

I think my confirmation bias has just been stimulated

Just because it was your pre-existing bias doesn't mean that it's wrong.

Tue, 11/22/2011 - 22:06 | 1905089 Nate H
Nate H's picture

"Gold is by far the best "answer," and now is still the best time to invest."


I disagree. Gold may hold value more than paper currency, but without a society to spend it in, it will be a pyhrric investment victory

Tue, 11/22/2011 - 22:12 | 1905111 Azwethinkweiz
Azwethinkweiz's picture

Was it Weimar Germany where during hyperinflation silver and gold bought city blocks? If so, when society starts to spend again, the stores on those city blocks will be once again loaded with cheap (African?) plastic products.

Tue, 11/22/2011 - 22:17 | 1905128 I think I need ...
I think I need to buy a gun's picture

The oligarchs in russia have no problem spending theres in fact they are the only ones who can buy anything over there.

Tue, 11/22/2011 - 22:18 | 1905132 mayhem_korner
mayhem_korner's picture




pyhrric investment victory = epic wealth transfer

...FROM those that believe gold is a "risk" investment TO those that understand it as a store of value

Tue, 11/22/2011 - 22:21 | 1905146 I think I need ...
I think I need to buy a gun's picture

after the wealth transfer and obama blows thru the spr this year before re-election you WILL need a gun to get gas more than likely come 2013.....

Tue, 11/22/2011 - 22:27 | 1905168 mayhem_korner
mayhem_korner's picture



Have both in large quantities already, including stabilizing agents.  What's really neat is that diesel can be stored for long periods and comes in handy 330 gallon storage containers in my neck of the woods.  :)

Tue, 11/22/2011 - 22:23 | 1905152 Nate H
Nate H's picture

can't say im looking forward to a world of 'epic wealth transfer'. We already have social inequality issues. If gold goes to $10,000+ as the author says, less than 1% of people will have ALL the wealth. Not healthy by a long shot.  Still, I don't dispute that gold could skyrocket. I just say 'be careful what you wish for'....

Tue, 11/22/2011 - 22:31 | 1905186 mayhem_korner
mayhem_korner's picture



If gold goes to 10,000 - who among the so-called "disadvantaged" hasn't had the opportunity to acquire some at a steep discount in the past 25 years?  Even 3 years ago, an ounce of gold was $800.

I disagree with your premise.  The bargain that gold was and is presents a great opportunity to equalize some of that inequality.

Tue, 11/22/2011 - 22:43 | 1905248 Nate H
Nate H's picture

doesnt matter why. fact is if 1% of people have all the wealth, not to mention breakdowns in trade and social stability, gold won't 'protect'. In fact nothing will. Wealth is going away (the ability to have large excess wealth that is)

Wed, 11/23/2011 - 11:46 | 1906833 Astute Investor
Astute Investor's picture

Actually, a much smaller percentage, say 0.001%, of the populace will have 99.9% of the wealth because the vast majority of physical gold and silver holders currently own relatively de minimis amounts.  Physical gold and silver preserves and protects wealth, but it's only effective assuming the holder has a sufficient amount of wealth today.  If your an individual / family, it's a seven-figure amount while a nine-figure sum is the minimum for institutions.  While owning any amount of physical metals is better than nothing, those who hold far less amounts than the threshold I suggested will not be much better off than non-holders in the long run.  I like Laws of Physics frequent statement: "Got physical? You should."  I think the question should be: "Got ENOUGH physical (and wealth)?"

Wed, 11/23/2011 - 12:14 | 1906944 mayhem_korner
mayhem_korner's picture



Where do you come up with your figures, o arbitrary one? 

Wed, 11/23/2011 - 12:55 | 1907020 Astute Investor
Astute Investor's picture

Much of life is a guesstimate so I'm not sure you can solve for a specific number or percentage in this case.  It's all based on the world as I see it.  Some people could think that my figures are arbitrarily high while others might feel they are arbitrarily low.

For an individual / family in the US, I would estimate the total wealth number needs to be somewhere in the range of $5-10 MM depending on where you live.  I arrived at the seven-figure sum by assuming 10-20% of that wealth is held in the form of physical metals.  I would use the same 10-20% for instititutions which is probably high.  I believe the University of Texas endowment allocated $1 billion or 5% of its portfolio to physical gold.

Wed, 11/23/2011 - 13:26 | 1907280 mayhem_korner
mayhem_korner's picture



That post is sure to bolster your credibility.

Wed, 11/23/2011 - 14:27 | 1907539 Astute Investor
Astute Investor's picture

Thanks, but I've never really been interested in seeking the approval of others.  It's simply sharing some thoughts and I realize it may not resonate with others.  To each his own.

Enjoy your turkey.


Wed, 11/23/2011 - 14:40 | 1907595 mayhem_korner
mayhem_korner's picture

Enjoy your turkey.


Already did, thx.

Wed, 11/23/2011 - 16:18 | 1908101 Astute Investor
Astute Investor's picture

Me too.  Funny coincidence.

Tue, 11/22/2011 - 22:57 | 1905317 I think I need ...
I think I need to buy a gun's picture

mayhem korner it doesn't matter they did it in the 30's it only took 10 years and and a world war to bring things back into balance, it will be about the same this time just have 10 years set aside there will be PLLEENNTY of minimum wage jobs making all sorts of torches ropes and bikes after revaluation

Tue, 11/22/2011 - 23:33 | 1905437 Axenolith
Axenolith's picture

IF you haven't spent your formative years breezing through the publik educashon system being indoctrinated with equal outcome mush...

Tue, 11/22/2011 - 22:50 | 1905286 nmewn
nmewn's picture

Nobody is wishing for it. But those that don't have it will wish they had it.

There is a reason it tracks food priced in fiat. The same reason central banks hoard it I suppose. When a paper ticket buys a grain of wheat and an ounce buys a thousand acres to grow it, you'll understand.

Tue, 11/22/2011 - 22:54 | 1905302 High Plains Drifter
High Plains Drifter's picture

franklin sanders always says that one day a oz of gold will buy the dow...........

Tue, 11/22/2011 - 23:02 | 1905347 nmewn
nmewn's picture

I believe he's right HPD.

Any real value is released at IPO anyways, they take the money and give you a different ticket to

Wed, 11/23/2011 - 00:33 | 1905625 JohnG
JohnG's picture



About 27 years ago it did.  It will again.

The $ WILL be revalued.

Yes we are doomed, but gold will hold, and those who own it may live.

Others, not so much.

Wed, 11/23/2011 - 01:29 | 1905732 eaglefalcon
eaglefalcon's picture

If gold goes to $10,000+ as the author says, less than 1% of people will have ALL the wealth


Thats technically not true, people with means of prodcution, like farmland, mines, fishing boats etc still retain some value even if they dont hold gold

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