I hear many people predicting gold will drop below $500. If it does, it would represent the buying opportunity of a lifetime, perhaps of several lifetimes. Those who believe gold should not continue its bull market advance believe we are entering a long-term economic bust that will reduce demand for everything other than money and consumer essentials. Indeed that would be true should the government sit idle, and they’re not, but that’s a topic for another post. Even if we experience a long term quasi-deflationary bust, here is where their analysis is mistaken — they presume people will always consider dollars the best form of money. Some say, “inflation in what you need, deflation in what you don’t” and since gold isn’t edible the price should drop, but that assumes people don’t need savings. Of course people need savings, especially rich people, and when you have a distribution of income as unequal as today, that means an enormous amount of savings may be looking for a new home.
This presentation is from Nov 2008.
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I do my own non-scientific research to determine the future potential upside for gold. Here’s how it works — I tell everyone who will listen that I’m buying gold and silver, not just mining shares and exchange traded funds, but actual physical metal, then gauge their reaction. The more ridicule I get, the bigger the potential upside remaining in the gold bull market. I’ve been doing this for about 18 months and I still don’t know a single other person who has begun to accumulate metal, but I can definitely see the tide turning. People aren’t laughing as much anymore, they still aren’t buying, but they are listening. When owning gold to preserve capital is as common a practice to these ordinary people as it is to me, that will be the appropriate time to start exiting the market.
The government is looking for a new bubble to entice hoarders of cash to spend. Those who believe in gold as the ultimate investment (a growing community) are the only people consistently prepared to dump dollars at first opportunity. Rather than depress the price of gold to maintain stability in currency markets, could a massive deliberate devaluation of the dollar versus gold be the more appropriate policy to stimulate spending and boost the velocity of dollars? Gold fever will cause dollars to move, there’s no doubt about it.
Gold guru Jim Sinclair’s excellent interview with Goldseek radio.
Gold is making all time new highs against pretty much every major currency, except the US dollar and the Japanese Yen. Gold is not down, those currencies are up. So you have to ask yourself, is that sustainable? Is that move a result of a qualitative assessment regarding the relative performance of American assets compared to the world or a result of a technical condition (too many people borrowed too much money in those currencies to buy stuff abroad and are now liquidating their assets to pay back their obligations due to credit tightening).
I have heard interesting arguments on both sides from people I respect, but over the long term does anybody really believe a dollar spent in America will yield the same growth prospects as a dollar spent in Asia? How much higher can the standard of living in the developed world rise relative to our financially challenged friends abroad? Just keep this in mind — one day dollars will be plentiful again, where will they be spent?
FDR steals the people’s gold, and ends the gold standard.
Nixon ends the Bretton Woods agreement.
A few months ago Jim Rogers announced an interest in buying airlines, the interviewer (shocked and amazed) highlighted the obvious (as if he didn’t already know) that many are going bankrupt, and Jim responded by saying, “Good… bankruptcies are signs of a bottom, not signs of a top”. He is a regular customer of the industry, and he knows there exists strong demand for their service at current prices, which means they could probably get away with some price hikes to restore profitability.
The US federal debt now stands at about $9.6 trillion. Just let that number sink in for a moment… believe it or not, it gets worse. The debt is rising faster than income, a rapidly growing percentage of the debt is owed to foreigners, and the age of maturity is dropping like a rock.
Throughout the Vietnam era gold was fixed at $35/ounce despite rampant monetary inflation aimed at funding imperialist projects abroad – Americans wanted both guns and butter, remember? The end result of course was the disintegration of the Bretton-Woods agreement and a surging price of gold that still until this day gives cause to doubt the ability of central bankers to maintain the value of paper currency over time.