Posted on 03/01/2008 6:18:37 AM PST by frithguild
GOLD $1,000! By the time you read this, that prediction — which I've made many times in this column — may have come true. It traded as high as $975 Thursday, a new record. A move up to $1,000 is actually a modest gain from there.
If it doesn't happen today, it will happen next week. If not next week, then next month. It's destiny. The forces that have propelled gold from its bottom around $250 in 2001 are still in play, perhaps more than ever.
When any investment hits a big, round, long-awaited, highly visible price target like gold $1,000, long-term bulls like me need to get a little cautious. We need to ask ourselves whether the secret is out. We need to wonder whether the move is over.
For sure, hitting $1,000 is going to focus a lot of attention on what has been, for many years, a neglected investment. It's been the province of a cult of die-hard gold bugs, people for whom gold is a personal obsession, not an objective investment opportunity. Hitting $1,000 will be 15 minutes of fame for these people, and I assure you they will bask in it for all it's worth.
Sadly, these cultists don't really understand the first thing about why gold has been a brilliant investment, far outperforming stocks, bonds, real estate and just about everything else this decade. But they're already coming out of the woodwork.
For example there's a new book that's plainly intended to exploit gold's recent momentum. Wait till you hear the hyped-up title: "Buy Gold Now."
The book is as bad as its title. It's actually hardly about gold at all. It goes on for chapter after painful chapter about how horrible everything is. You know the drill: real-estate collapse, over-indebted consumer, trade deficit, falling dollar, derivatives, government debt, leverage, systemic risk, yadda yadda yadda. It's all the same end-of-the-world baloney you can hear for free every day on CNBC.
At the end of the book author Shayne McGuire says to buy antique gold coins, yet he never quite explains why his doom-and-gloom rant would lead to that conclusion. One suspects that if pork bellies were making headlines, the book would be called "Buy Pork Bellies Now," and it would conclude with a chapter on buying antique pork bellies.
So I'm not all that worried that books like this are coming out to exploit gold $1,000. This author has no clue about why you should really buy gold now. The secret is safe.
The reason to buy gold now — the only reason ever to buy gold — is inflation, and that's why I've been saying buy gold since 2001.
Why the inflation connection? Of all the commodities in the world, gold is the most sensitive to inflation. Because production of new gold is quite small in relation to the existing supply of it, and because gold lasts forever, it's not subject to sudden shocks in supply. It has no important industrial uses as, say, oil does, so it's not subject to economic shocks. It's one and only use is as alternative money, a store of value to run to when you don't trust the paper money churned out by governments. When people trust paper money less — that is, when they fear inflation — they become more eager to exchange it for gold, and the price of gold rises.
Ahead of the Curve
Fed's Inaction on Inflation Is Pushing Up Gold By Donald Luskin |Donald Luskin Archive |Published: February 29, 2008
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And why do I expect inflation to keep pushing gold higher? How could I possibly when Federal Reserve Chairman Ben Bernanke testified before Congress this week that he was concerned about rising levels of inflation, and that "in the months ahead, the Federal Reserve will continue to monitor closely inflation and inflation expectations"?
Well, I don't know how to say this politely so here goes: It's because I don't believe him. Bernanke may be watching inflation, but he has made it clear that his highest priority is rescuing the economy from the effects of the subprime mortgage meltdown. I take him at his word when he told Congress the Fed "will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks."
It's not just because the Fed is focused on bolstering economic growth. It's because I think the Fed doesn't really understand the inflation threat being signaled by gold $1,000, oil $100, the dollar at new all-time lows, or any of the other inflation symptoms I've been predicting in this column for years.
This week Frederic Mishkin, a former academic colleague of Bernanke's and now a member of the Fed Board of Governors, gave a speech about inflation that simply astonished me by the depth and breadth of its utter ignorance.
Mishkin says that inflation is the byproduct of economic growth — it happens when, say, the unemployment rate is too low. But then he turns around and says that, long term, there is no relationship between unemployment and inflation.
He says the Fed's most important role as an inflation-fighter is to control "inflation expectations" in the market. What's the best way to do that? By keeping inflation low. That's right. You control inflation expectations by keeping inflation low, and you control inflation by keeping inflation expectations low. Translation: Expect more rate cuts, inflation or no inflation. Further translation: Expect more inflation. Even further translation: Expect gold $1000. Expect oil $120. Expect the dollar to keep falling.
With all that, I think there's a pretty good chance that Bernanke will end up succeeding in bringing the subprime mortgage crisis to successful conclusion and keep the economy from going from its present soft patch into a real recession.
It may take a little patience, but that means that the bottom is in for stocks. Someday there will be a price to be paid. Gold $1,000 will eventually show up as real-live inflation measured by the CPI and other official statistics. It's already starting to happen, but not quite at levels high enough to make it into the headlines of the mainstream media.
So eventually inflation will be so obvious that the Fed will have to crack down on it. And that's not going to be pretty. But in the meantime, let the good times roll for gold, commodities, oil, and energy and resource stocks.
Donald Luskin is chief investment officer of Trend Macrolytics, an economics consulting firm serving institutional investors.
Greenspan was a closet gold standard proponent. In fact, Fed policy under him was a de facto gold standard. Barnake thinks he is smarter than that. The market is ALWAYS smarter than any one policy maker.
Sorry for the noise in the post - I did not edit well!
No mention of the 12+ million ounces that are authorized to be sold (maybe already have been) by the IMF, the news of which knocked futures down b 8+$ that day?
Me thinks the people that own the resources make markets better than all the experts put together.
Now let's see, when the major hordes start selling, what does that tell me...
I think it has 5 more months to run. By July oil prices will begin to fall and the $$ will begin to firm. The market that has been climbing by small increments and fits will recover.
That means a top of $1150 or @1200/ oz.
Factoid....Gold was $35 per ounce in the 1930’s.
It seems to me that gold is now an alternative currency. The central banks are going to have an increasing problem in trying to control the price. The problem is that GLD on the NYSE has more gold in its vaults than the UK.
Like it or not, we will eventually face that the universal currency is gold. It may not be in our pockets, but having a minute by minute record in GLD means we all will be able to compare our own and other nation’s currencies to gold.
Hmmm - taking profits before the pullback after it hits $1,000 maybe? Then see if the pullback breaks the chart pattern before you get back in?
the major hordes aren’t traders. They ARE the market. They’re not deciding if this is pullback or a B Wave or if it’s time to buy bullets and cannned goods or what the inflation adjusted price should be. They aren’t trying to figure it out or outguess it. They ARE it.
Would you be able to explain just how one would go about buying something and paying for it with gold? (In a SHTF scenario)
the cost of Bush’s occupation of Iraq
is bankrupting the US.
In 1971 Chairman Henry Reuss of the Joint Economic Committee of Congress predicted gold would fall to $7 an ounce once the United States demonitized gold.
Would you be able to explain just how one would go about buying something and paying for it with gold?
Or: “If you let my family stay in that house you own for ___ weeks, I’ll give you this Krugerrand.”
Two years ago I warned folks here to gear up for 1970s-style inflation and stagnant growth. It was clear to me that 2006 was 1973 all over again.
OCCUPATION?
Sniff sniff
Regardless of what you want to call it, it’s effectively bankrupted the U.S.
Let’s call it a Crusade, that should be popular.
Iraq is not busting our butts by itself.
Years of out of control government spending on all manner of crap is to blame.
And a dollar in the 30's is worth 15-20x more today...so gold was worth about 500-700 in todays dollars.
Keep in mind, though, that the cost of the Iraq "war" is far greater than most people realize. All financial dealings in Iraq right now are executed in U.S. dollars, which means the U.S. has effectively absorbed a 51st state with California's population, Zimbabwe's business climate, and all the cultural and social stability of Haiti or Kenya. The cost of this kind of nonsense is enormous.
2 problems with that.
1. the government doesn’t control inflation directly. Its actions and policies can influence it.
2. you can’t buy groceries with gold. Gold has to be converted to money at some point. Gold is good as a way of riding out the kind of hyperinflation that reduces savings to essentially zero. The kind that dictatorships love, because it makes everyone equally poor.
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