Several months ago, I projected gold to hit $1,600 by January 11th, 2011. We have 13 months to go and the commercial real estate market is now unwinding with the Dubai World news bringing this issue to the forefront. Any discussions of raising interest rates is purely intended to manipulate perception.
The U.S. Total Debt is racing towards a cliff with nothing to stop it. The Administration has projected this year’s deficit to be $1.417 Trillion. However, simple mathematics would indicate that the deficit will be $1.885 Trillion based on the government’s own numbers. In 1982, The National Debt was $1 Trillion. By 2019, the National Debt will be $25 Trillion and the interest payments alone will be $1.5 Trillion per year. This is bullish for gold, silver, oil, and natural gas denominated in U.S. Dollars.
Am I a gold bug? Of course not, I am a pragmatic student of economics. I don’t think there are any true experts in economics based on the track records of all their proposed economic theory. Economics is affected by the spiritual realm and cannot be sanitized from its impact. This higher realm affects men’s decisions, emotions, greed, and fear. This is why mathematicians have been unable to find the “holy grail’” of formulas to predict future prices of stocks and commodities. You must look at Biblical fundamentals and cycles to see where the economy is headed. The real issue becomes the timing of the changes in direction. In 1990, I discerned that the U.S. was headed for destruction but knew not the timing. It took a decade for the first bubble to burst. In the meantime, it appeared that I was wrong since I had no understanding of the timing factor. Now the bubbles are bursting at a faster rate and leaders are using out-of-date tools to fix the problem. There are such massive levels of leverage on assets out there, the only liquid asset without a liability attached is a precious metal.
Currently it takes about 8.75 ounces of gold to equal the Dow Jones Industrial Average (10,471/1200). Once this ratio moves to a 5 to 1 relationship, one should consider reducing their gold or silver position slightly (assuming you have a 10-20% position relative to your assets now). If the relationship moves to a 1 to 1 ratio, diversification into other assets should be considered. This ratio has only been achieved a couple of times in the last 150+ years. This would indicate that the public in now “all in” and the public is usually the last group to arrive on the investment scene.
The financial media has been talking up the Dubai default. It would appear that there is some attempt to manipulate the fear among investors in an effort to increase the demand for the US Dollar and slow its slide. Foreign Government and Institutional investing in gold will keep a lid on any notable appreciation of Dollars. China recently announced its intention to be a buyer of gold, up to 10,000 tons, for the next ten years. What currency do you think they will use to buy their gold? See: http://www.washingtonpost.com/wp-dyn/content/article/2009/11/30/AR2009113001461.html
Our world leaders are “satisfied” that everything is under control. Just a note on Gordon Brown: Between 1999 and 2002 Brown sold 60% of the UK’s gold reserves at $275 an ounce. A frequent criticism of this decision was that an unprecedented rise in the gold price since has resulted in £2 billion of lost potential revenue (at 2007 gold prices). As a result, the period from 1999 to 2002, when gold prices were the lowest for 20 years, has been dubbed the "Brown Bottom". Based on today’s price, the bottom even looks deeper and what is that brown stuff on the bottom?