“Gold futures rallied to a record over $1,380 an ounce Thursday, and silver futures rocketed more than 6%, after investors piled into precious metals as a hedge against the sinking U.S. dollar after the Federal Reserve rolled out a new, $600 billion of extraordinary stimulus measures to prevent deflation.” — Marketwatch
There are those who say things like “You can’t eat gold, it isn’t required for industrial production processes. This is just hype to suck in the dimwits who have a herd mentality in the stock market,” but the reality is that precious metals like gold is used in a great many industrial processes, ranging from batteries for hybrid cars to speaker cables, most electronics really. The value of gold is almost unchanged, what has changed is that the currency we use to purchase it, Euros, Dollars, Yen and so on, have lost value. These currencies are based on debt, they are generated from debt, and it is that very nature which ensures that our current economic model is doomed to failure. If the entire economy and the currency that runs it is based on debt, eventually someone gets left holding the bill. But if you hold gold you hold value, real value in a world where currency is just paper. Don’t take our word for it, just look up ‘Fractional Reserve banking’.
As with all fiat bugs, they are assuming there is a free market for gold, but there is not. It is suppressed by the US government and big Wall Street banks. It was a free market up until it hit the $800 mark in 1980, then the bullion banks resumed their suppression activities to bring it back down. Now they are losing control of it because they use naked shorts and they have run out of silver and will soon run out of gold to supply the physical buyers.
They suppress gold and silver for a couple reasons. One, to keep people like you maintaining your confidence in worthless fiat paper. That way, the government can control the money supply and run deficits. Secondly, a few decades ago Saudi Arabia decided that it did not want more worthless fiat US dollar notes as payment for its national treasure of oil. It instead demanded gold, but this would have blown up the market. So the US has been suppressing gold prices so the Saudis can accumulate it cheap over the decades. In return, we get cheap oil.
Gold is going to at least $50,000 (inflation adjusted), maybe above $100,000, possibly even half a million, while your ponzi scheme boring investments go to zero. Doesn’t the quadzillion dollars of derivatives out there scare you? The US dollar will hyperinflate away to zero within a year.
The reason gold went “splat” in the 1980s was because the US Fed jacked up interest rates to double digits to combat inflation, which gave people confidence in the US dollar again. They could do that back then because they had very little debt. If they jack up the rates now with their Trillions of dollars of debt, the US won’t even be able to cover their interest payments, let alone pay down the debt. So the way I see it, they will either leave interest rates at 0 for many many years. Or they will jack up interest rates and use the Bernanke printing press to pay off their debt. Either scenario sees gold skyrocket far above what it is now.
Gold is still in a bull market
In the current bull market, gold has gone up 5 times its bottom. In contrast, in the circa 1965 to 1980 run-up, it went up 25 times its bottom. This leads me to believe it is not at a top.
If somebody bought gold in the 1970s at 5 times the bottom, they would have paid $175, which was the average price of gold in the 1970s. If they bought at the top, they would have bought when it was 25 times its original value.
If someone bought at $175, or 5 times the value in the 1970s, it would still have more than retained its value when gold dropped to its low of $250 in 1999.
When gold dropped in value after 1980, it bottomed at 7 times its original value in the late 1960s. In today’s market, gold needs to rise to $1750 to be 7 times its base value of $250.
In today’s market, to be 25 times its base value, gold would have to rise to $6250.
In contrast, $35 cash, the value of gold at the start of the bull run of the 1970s, is nothing today. Isn’t it possible that $250, the value of gold at the start of the current bull market, will be nothing in 40 years? What would you prefer to have, gold or cash, knowing what you know now?
China has over a trillion dollars US in savings. As the US dollar falls, so does the value of Chinese savings. The US dollar has lost 33% of its value against a basket of other currencies since its high in 2001. To protect itself, China is quietly divesting out of the US dollar into gold.
In other words, in our estimation, gold (and silver) are still in a bull market.