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$1300 Gold

24 September 2010 15 Comments

Gold has touched the $1300 mark.  For those of you who understand the macro-economic backdrop and understand our past, current and future economic policies, you know that gold will absolutely continue moving higher.  $1300 is just another level that will be crossed on the way up to a level few people imagine at this point.

While I’ve laid the case multiple times here on this site, let’s look at the main factors why gold has to go higher.

First, you need to know that there is no way out for the economic policy makers of this country other than a debased currency.  Too much debt, absorbing losses from financial institutions like Freddie & Fannie, weakened economy that isn’t producing enough tax revenue, there is no way out.  The fed must print money and must debase the currency.

This is nothing new.  The dollar has lost over 90% of its value since the Federal Reserve was created in the early 1900s.  One of the Fed’s jobs is to keep inflation in check, but this is a blatent lie.  They want and need inflation in order for the status quo of bloated government and Wall Street power to continue.  Inflation is a must.

Inflation is a guarantee.  Even in a miserable economy where deflation is the natural cure and what the market attempts to do via bankruptcies, foreclosures, liquidations, deleveraging, etc., inflation is and still will be the result.

There is inflation everywhere right now.  Prices of grocery store items are going up – and if they aren’t going up, the package & quantity is decreasing which is the same as inflation.  Starbucks is raising prices.  What?  Shouldn’t Starbucks be dropping prices due to a terrible business environment since Starbucks is a premium product and a unnecessary item amidst an economy where people are cutting back on non-essentials?  Nope.  They’re raising prices.

Amazingly, stocks continue to move higher (even though we’re still lower than the highs on the year from April), despite record outflows of retail investors.  Regular joes like you and me are bailing out of stocks.  They want no part of it.  But the government and its pseudo-helpers (financial institutions) will make sure to put a floor in stocks because like Alan Greenspan said, nothing is better for the economy that higher stock prices.  Absolutely the Federal Reserve will buy stocks.  Not exactly a true market anymore is it?

Ignore the level of the Dow.  The Fed may be able to increase stock prices nominally, but measured against the rising price of gold, the truth is revealed.  Stocks will lose value when priced in gold.  As will houses.

If you don’t have some of your assets in precious metals like gold & silver, you are accepting some significant risks.  Your cash in your savings account is losing value every single day.  That 1% return you’re getting from the bank doesn’t cover the loss of purchasing power due to inflation.  You need to hedge this with gold & silver.

Again, $1300 gold is just another intermediate milestone. We will see the $1300 be passed and then $1300 will become the new floor.  Even if this doesn’t happen right away, it’s inevitable.  We might see gold drop to $1100 before we see it hit $1400, that is fine.  I will be buying gold in that case.  It will not go up in a straight line, but make no mistake, it is going up.

15 Comments »

  • TaJ said:

    Quite apart from the issues with the Fed, there's another factor that may drive gold higher – the Chinese. The Chinese public suffers from the same thing that you're describing here – the government's currency policy means that money in the bank loses value; saving cash is like paying the government to hold on to your money. This drives investment into physical property, which is a cause of the Chinese property bubble. As the Chinese government tries to restrict the property bubble, this will, and is, driving investment into other physical items, in this case, gold (and jade, but that's much harder to invest in for people in the west).

    The western investors' "hedge against catastrophe" is not the only reason gold is likely to go higher, in other words.

  • Tom said:

    Gold is the next bubble. I wish people would stop deluding themselves by thinking that as the next asset class heats up the result is going to be any different than last time. Energy and housing are just as necessary (if not more so) than gold.

  • 20smoney said:

    I'm fine w/ it being the next bubble. That means it will blow up and I will sell while the average joe's out there are buying it.

    Right now, I don't know a single person personally that is buying gold (or silver). Contrast that w/ the nasdaq bubble, everyone i knew was buying stocks.

    Vastly different.

    Again, I'm fine w/ a bubble that means I'll make a killing, we're just nowhere near that now.

    People have been calling a bubble in gold now for years. They'll do it again at $1400, $1500, etc.

  • Tom said:

    I got the impression from these articles that you thought it was going to stay this high forever. Given that you don't believe that (or accept that there is at least a chance that won't be the case) the golden question is, how will you decide when to sell?

  • Tolga said:

    Sell when everyone is buying …

  • Tolga said:

    You dont know anyone buying because they were buying in '00 at $250s. Some people will buy at the top but I can easily see that you can not make fair judgement as you believe in something (gold will go up) so you will be buying when it starts declining.
    Believe me, it was obvious to many, when gold was at 250-400$ that a new cycle was initiated. So, big hands were buying and now they began selling. Otherwise you would not be seeing gold news screaming to get buyers here.
    But, anyway, good luck. Winners are always right.

  • 20smoney said:

    obviously buying at $240-400 was a better time to buy. but to say that tons of people were buying then is absolutely wrong. again, I'm talking about the masses. The masses have yet to buy gold similar to other bubbles or ends of bull markets.

    How will i know when to sell?
    1: when the federal government implements a strong dollar policy (will never happen)
    2: when people i know personally start recommending gold – like i said, nobody i talk to personally buys gold.. when this happens ill know that more people are buying than selling at this point and i'll be welcome to unload some of my holdings.

  • Tolga said:

    You will probably not see anyone buying on the way up. There will be a peak and then ordinary people will start buying from 20-30% from the top. I hope you can get rid of gold before these happen.
    Another mistake is to compare todays gold rally with 1980s. At that time, it was silver driving the rally.

  • Kevin@InvestItWisely said:

    What does your current asset allocation look like? Are you taking a rebalancing approach to selling gold, or otherwise at what price would you deside to start selling…?

  • raymondtlee said:

    Scary. What's the best way to invest in gold, I have an Ameritade stock account only.

  • TaJ said:

    There are several ETFs that hold gold, most notably the appropriately named GLD. If you're ambivalent about gold itself, there's also mining stocks – some of them only have partial exposure to gold, so in the case that gold is a bubble you're not totally boned. You'd be well advised to do plenty of research before buying anything though.

  • Frank Lapore said:

    You go girl

  • @FinancialPlan said:

    Gold is rising much faster than its comparable precious metals. Faster than platinum, silver, and palladium (not actually precious, but used as a substitute for white gold). About twice as fast. I think demand for physical gold for jewelry in the emerging markets is causing much of the price appreciation.

    Mike

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