Articles & Blogs - Gold Commentary

User Rating: / 15
PoorBest 

For obvious reasons, there are few questions asked as regularly of precious metals commentators as “how high do you think the price of gold and/or silver can rise?” Before I look at what is implied when people ask that question, I will discuss the answers to that question – and what is implied by these estimates.

The starting-point is to go back to when the bull market began for precious metals, at roughly the turn of the millenium. At that time, the small number of informed, precious metals commentators who occupied this niche were “estimating” that the price of gold could hit $1000/oz – with the more confident/bullish pundits suggesting that gold might even reach $2,000/oz.

Skip-ahead to today, and now any experienced precious metals commentator who estimates $2,000/oz as a “ceiling” for the price of gold is seen as being extremely conservative. Veteran precious metals commentator, Lorimer Wilson, recently surveyed these analysts, to compile a list of such estimates – in order to set some parameters for these prices.

He found five commentators currently suggesting that the price of gold could eventually exceed $10,000/oz, nearly two dozen who chose figures between $5,000 - $10,000/oz, and than another dozen who had specifically chosen $5,000/oz as their price target. He added more than two dozen other estimates of between $2,500 - $5,000/oz – and didn’t include (or couldn’t find) a significant number of informed commentators expecting anything less than that.

What happened between then and now? Were those earlier commentators simply not as aware or astute with respect to the potential of precious metals? Hardly. As a commentator who was not one of the first to become an advocate for precious metals, I have great admiration for the “first generation” of commentators who were here before myself.

Not only did they demonstrate superior insight in seeing what was happening before others, but they also demonstrated extraordinary courage and conviction in being ready to stand up and make their predictions for this sector – when it was literally the most-unloved asset-class among all Western investors.

What has changed since $2,000/oz was originally seen as a long-term maximum for the price of gold is that our currency-debauching bankers keep “moving the goal-posts”. Put another way, the bankers have accelerated the destruction of their cherished, paper currencies so rapidly that the earlier predictions were rendered obsolete.

In short, while the original “gold bugs” were seen as extremists and alarmists, in fact their only ‘sin’ was to underestimate the monetary depravity of bankers. Thus, we have established the proposition that rather than being shrill “Chicken Littles”, that precious metals commentators have been making sober, conservative appraisals of the economic harm caused by the extreme excesses of bankers – in the absence  of a gold-standard.

This leads us to a second proposition: given the reasonable, responsible efforts of precious metals commentators to apprise us of the relative appreciation of gold and silver versus banker-paper, the rate of change of such estimates provides a reasonable “proxy” for the speed at which the bankers are destroying these fiat-currencies – and most notably the U.S. dollar, the world’s “reserve currency”.

It is extremely useful to identify such a proxy, living in a world where our governments use heavily-contrived statistical fictions as a means of deceiving rather than informing us. Listen to clueless, media talking-heads yammer on about a “gold bubble”, listen to the same vacuous voices talk about “near-zero inflation”, and you can rest assured that you will live in a state of perpetual ignorance regarding the rate of destruction of our paper currencies (and the paper wealth they represent).

As useful as these commentators’ future estimates of gold and silver prices are, however, it recently occurred to me that such literature is very likely concealing a very large “blind spot” regarding the economic analysis conducted by precious metals commentators. Specifically, we run into nothing less than a logical disconnect when our analysis turns toward a subject with great relevance for the precious metals sector: hyperinflation.

Let me spell this out in detail. All investors who have attempted to familiarize themselves with this sector will be aware of the dire and sincere warnings from these same commentators that our economies are seriously at risk of setting off a hyperinflationary price-spiral. Most of these investors will be familiar with the esteemed economist, John Williams (of Shadowstats.com), and his even more explicit warnings that “U.S. hyperinflation” could commence as soon as this year.

A recent comment by a reader revealed to me that I have not explained/explored this topic in sufficient detail to eliminate the “logical disconnect” which I just mentioned. Specifically, most people “understand” the concept of hyperinflation well enough to realize that such an economic catastrophe ends with the paper-currency of that economy collapsing to zero.

Note that when such paper reaches zero, that this necessarily implies that the “price” of gold and silver in such a worthless currency is literally infinite . Even those people who didn’t excel in “math” will understand that there is a rather large gap between $10,000/oz and infinity.

This brings us (at last) to what is implied by any/every commentator who engages in price-forecasting with respect to silver and gold. Either such commentators are only making “medium-term” estimates for gold and silver prices, or that commentator is implicitly rejecting the possibility of hyperinflation – or the commentator simply doesn’t understand what hyperinflation really is.

In saying this, I’m not attempting to denigrate any other commentators. Indeed, being a “numbers guy” my entire life, I have always been highly cognizant of the increasing level of “mathematical illiteracy” in our societies. Part of this “illiteracy” is directly attributable to the enormous defects in our education systems. However, the other aspect of this lack of comprehension is that we are being exposed (for the first time) to mathematical concepts which are far more abstract or complex than anything which our ancestors ever needed/attempted to understand.

“Hyperinflation” is just such a concept. Not only do we need to carefully define this concept before we can possibly understand it, but we need to construct a definition where “understanding” is within the grasp of the average person. Here we run into a second “disconnect”. Economists and other scholars looking at related issues have indeed constructed several definitions for hyperinflation.

In the conclusion to this commentary, I will argue that such definitions are not accessible to the average person, and thus are not helpful in educating the general public about this very important concept. I will construct my own, less rigorous definition – and then will apply that definition to the issue of analyzing gold and silver prices.

TrackBack URI for this entry

Comments (3)

Subscribe to this comment's feed

...
written by Jeff Nielson, October 10, 2010

I LOVE the work they do on this blog, and have gained LOTS of historical insight into events here - since it's been around for a long time.

The theory about the Saudis and oil and gold is VERY plausible - and obviously an explanation for the gold the Saudis suddenly "found" (lol). When it comes to almost all gold-hedging, this always suppresses the price because it allows the banksters to dump more (more or less) "physical" metal onto the markets.

Keep in mind the progression of the bankster manipulation scheme. First, when they had "lots" of bullion (lol), they foolishly just dumped large amounts of their reserves onto the market to hold prices down ruthlessly, in a brute-force death-grip.

On the one hand, they squandered HUGE amounts of bullion in doing this, on the other hand, they brought the gold miners to their knees. So there was a "Deal with the Devil".

The banksters promised not to obliterate the miners, and to even making their hedging contracts "profitable" for the miners (or so everyone assumed). And this gave the banksters THOUSANDS more tons of gold to dump onto the market, or send to the Saudis (even though it hadn't been mined) via the futures market (i.e. the Crimex).

The PROBLEM is that this was once again a short-sighted strategy - since global gold production became so depressed that there was a huge, annual supply deficit. To counter the supply-deficit, the banksters started creating various forms of "paper gold" (including derivatives), and then in recent years have been forced to leverage the market with more and more paper - to stop the price from REALLY exploding higher.

The irony is that if they had LEFT gold at $800/ounce in 1980, there would have been MUCH, MUCH more gold mined over these decades, MUCH less demand - and thus very little NEED to dump bullion.

So if these banker BOOBS hadn't been so ridiculously short-sighted, they could have been sitting with MORE GOLD today than in 1980, and be able to maintain a stable price for many years to come.

Instead, they have virtually no bullion, and what they have left is leveraged 100:1. And we're supposed to "admire" their business savvy why?

• 
• +3
• 
• 

...
written by Null, October 10, 2010

Oops, that should have read, "after which you won't be able to buy it becasue central banks have become net BUYERS" not "sellers"

• 
• +0
• 
• 

...
written by Null, October 10, 2010

The anonymous blogger FOFOA has recently put out several hyperinflation posts. His analyses are very technical but I'm not one to run away from that and I am learning a lot from them and many other commenters (especially here, thanks). FOFOA predicts gold to likely hit about $50,000, and that'a after adustment for inflation. When I see someone making a future prediction for gold price, I always assume that this is inflation adjusted, ie, how many real physical assets could you buy with that chunk of gold, at today's dollar prices. Of course when hyperinflation sets in any price prediction is meaningless.

The reason for FOFOA's high price projection is because he sees hyperinflation as an inevitablility (which it is). Additionally, the market believes there is much more gold out there than there is due to all the paper ETF's out there, which apparently do not have much or any of the gold their purchasers believe they do. Or if they do have gold, then it's encumbered gold, leased from somewhere else and only stored at the ETF's vault. They justufy this becasue ETF's originaly were offered as a way for speculators to get exposure to gold volatility without the hardship of physical ownership. Now they are instead being used by investors as a store of wealth as if it was real gold. When the whole scam becomes mainstream and someone decides to break the bank, all that paper gold will disappear. The leverage ratio is apparently 100:1 meaning that on that basis alone, gold should be 100 times more expensive, but that is only considering the part of the gold market invested in ETF's.

http://kingworldnews.com/kingworldnews/Broadcast/Entries/2010/3/30_Andrew_Maguire_&_Adrian_Douglass.html

The US government's gold suppression schemes have been going on for so long, that there is no price discovery ability in the markets anymore becasue it's all a big gong show.

The other thing FOFOA alludes to is the assertion that for a few decades now Saudi Arabia has been receiving payment for its oil in the form of gold. This makes sense, why would they want worthless pieces of paper US dollar money? The Arabs understand the timeless value of gold and the inherent worthlessness of pieces of paper or the debt of a nonproductive consumer country (the US). But if they were paid in this much gold for their oil then the whole gold market would quickly explode and they would no longer be able to accumulate cheap gold for 2 decades. So instead, what happens is that the US government suppresses gold prices using the bankers, so that Saudi Arabia can accumulate cheap gold straight from the miners who are protected from the low prices by hedging (maybe Jeff can explain again how miner hedging works), and conversely the Arabs have been giving us cheap oil in return. Sounds like apretty bad deal for us myself -- when you burn oil it's gone forever, but gold is forever. This is also another explanation for the extreme reluctance of western powers that be to allow the free market to wean us off oil, which would actually be a fairly simple thing to do believe it or not, we have all the technology to do so and it's both cheaper and better than an oil economy.

Me personally, I am expecting as FOFOA says a price around $50,000 or higher. Once this market gets free there is no limit, especially with hyperinflation looming. And in a nother recent FOFOA post, he explains how gold simply could no be in a bubble ever, because of its very nature as an asset that has no pricing mechanism other than what people are willing to buy it for. What happens when the US dollar is no longer the world's reserve currency? Will we simply move to a different reserve currency? Or will gold become the world's reserve currency? Once people forever lose faithin the wealth value of paper money then who in their right mind would store the fruits of their hard labour in dollars or the future equivalent of it? Instead, they will use gold as a wealth storage medium. We will likely have a two-tier monetary system -- gold for longer term storage of wealth, and then some other gold backed or non-gold backed fiat currency used for everytday transactions. This will be inevitable because everyone will have lost faith in paper currencies.

Any way this happens, apparently we now have only a few months' worth of gold left, after which you won't be able to buy it becasue central banks have become net sellers, and I believe it is the IMF which is supplying all this gold to supply demand, to keep the US gold suppression / dollar propping scam going as long as possible (is this true Jeff?). I have noticed that when I used to buy gold coins I would get older ones, but now they are all 2010, so I guess the Canadiam Mint is has soldout its inventories and is going full bore on IMF gold?

• 
• +0
• 
•