Posted on 10/10/2010 11:07:11 AM PDT by blam
When Will Gold Reach $10,000 An Ounce?
by: Wall St. Cheat Sheet
October 10, 2010
Gold bugs like gold because, unlike fiat money, gold has an inherent value to it. Its relative scarcity makes it more valuable than other things. It’s interesting, then, to list gold bugs’ arguments in favor of gold. Their main claim is that when governments devalue their currency, by letting inflation run rampant and taking on more debt than seems prudent, gold becomes an attractive investment vehicle. Never mind the problems with storing, moving, and securing gold, the gold bugs say: gold has inherent value that fiat currency does not.
That argument is fine as far as it goes: it is true that gold has an inherent value that paper-based money does not. And, indeed, since Nixon moved the US off the gold standard in 1971, our currency has not been tied to anything other than the the promise of the US government to make good on its debts. (Consider that every note you have in your wallet says on it “This note is legal tender for all debts public and private.”)
So, given all of this, yes, the gold bulls have a valid point that where paper currency derives its value from the potentially suspect promises of a profligate government, gold derives its value from its inherent scarcity.
But does it follow that gold will be a good investment in the future? Just because something is scarce doesn’t mean it’s a good investment.
Ken Rogoff, the Harvard economist, wrote recently about gold:
One successful gold investor recently explained to me that stock prices languished for a more than a decade before the Dow Jones index crossed the 1,000 mark in the early 1980’s. Since then, the index has climbed above 10,000. Now that gold has crossed the magic $1,000 barrier, why can’t it increase ten-fold, too?
Admittedly, getting to a much higher price for gold is not quite the leap of imagination that it seems. After adjusting for inflation, today’s price is nowhere near the all-time high of January 1980. Back then, gold hit $850, or well over $2,000 in today’s dollars. But January 1980 was arguably a “freak peak” during a period of heightened geo-political instability. At $1,300, today’s price is probably more than double very long-term, inflation-adjusted, average gold prices. So what could justify another huge increase in gold prices from here?
One answer, of course, is a complete collapse of the US dollar. With soaring deficits, and a rudderless fiscal policy, one does wonder whether a populist administration might recklessly turn to the printing press. And if you are really worried about that, gold might indeed be the most reliable hedge.
But he sounds a sensible note of caution: gold prices are inversely related to interest rates, and interest rates are at historic lows around the world.
Indeed, another critical fundamental factor that has been sustaining high gold prices might prove far more ephemeral than globalization. Gold prices are extremely sensitive to global interest-rate movements. After all, gold pays no interest and even costs something to store. Today, with interest rates near or at record lows in many countries, it is relatively cheap to speculate in gold instead of investing in bonds. But if real interest rates rise significantly, as well they might someday, gold prices could plummet.
The gold bugs make some interesting arguments about the difference between gold and fiat currency. And those arguments are valid. But they ignore the connection between interest rates and gold prices. Their case is not as convincing as they think it is.
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“When Will Gold Reach $10,000 An Ounce?”
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In the second month of the RaceMarxist’s third term.
.82 yen = 1350
Way before then, properly molded ‘lead’ will be at a premium....that, and copper jackets, gun powder ———and brass, too of course!!
When oil reaches $500 a barrel.
Fiat money? LOL
Overlooking the slightly obvious fact that they have already made that inevitable.
“In the second month of the RaceMarxist’s third term.”
Right you are, my FRiend. If gold hits 10K, it will mean we are at CW2 level and guns will be much more valuable than a truckload of gold.
Oil is one element.
I’ve seen projections based on historical value of gold v merchandise that show gold and the dow meeting at 3000.
There was a mathematical argument that generated a support level of dow and gold at 5000 but that assumed minimal .gov interference. a case I doubt would occur w/ zero in the oral orifice at 1600 Pennzy.
take the dow back in 78 or 79 when an ounce of gold could have bought the whole dow. run forward.
that’s where the dow and gold at 3000 comes from. The dow is seriously overvalued, gold seriously being jacked around.
enjoy.
Always had one nagging question.
The real crisis hits the world. The real shiite hits the fan. I own stock in the gold market but I’m shrewed enough to also own real gold coins and jewelry.
Okay? Okay.
Now, there is a global shaking economic crises that involves war, revolution, famine, and disease. Everyone that owned gold contracts make a run on the market making the false system crash.
But I was a smart cookie and hoarded some jewelry bought back when gold was $340. Dollars are worth nothing. Euros worth nothing. Yen worth nothing. Yuan worth nothing. Peso is still a peso. Gold contracts are worth less than the paper they are printed on. But I have real gold coins and jewelry hidden in my house.
One day, a few weeks after the initital crash, I run out of supplies. The whole world is shattered as I drive into town. Shelves are sparce at the Costco. But they have canned beans and a pint of rubbing alcohol, priced at 1 million Euros. I produce one gold ring which entitles me to the supplies. The cashier smiles as I walk away and immediately alerts her husband who blabs to other townspeople including the cops. Rumors run wild about hidden treasure. They all look at each other and think, “If he has one ring, he must have more.”
So my question, how safe is my investment, in the coming global crisis, when I’m dead from the mob of starving desperate bandits?
In a real Road Warrior SHTF scenario, it might not be worth anything.
Doesn’t the Bible say something in Revelations about even the people with gold couldn’t buy anything?
You might be able to buy land. You could still pay your bills.
You just might not be able to find a can of beans on the shelf anywheres in your county.
You’re in luck! I’ll take $10K for my gold today. You need to act quick though, this is a limited time offer.
There won't be food at the super market for you to make this mistake.
Quietly bring your gold to me and I will swap it for food...I have way more food than you do gold.
I will establish the prices...I can do without your gold a lot longer than you can do without my food.
I told my 'gold bug' buddy the same thing.
BTW...I have more lead than you do too...no ambushes, ahem.
Googled Ez. 7:9 “They shall cast their silver in the streets, and their gold shall be as an impurity: their silver and their gold shall not be able to deliver them in the day of Jehovah’s wrath; they shall not satisfy their souls, neither fill their belly; for it hath been the stumbling-block of their iniquity.”
So you’re pretty much screwed, if you believe Ezekiel.
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