International Forecaster: November 2009 (#7)
INVESTORS BUY GOLD WHEN THERE is inflation and when there is a flight to quality. They buy gold when they no longer trust currencies, due to government or central bank profligacy. Due to those and other reasons gold has broken out to new highs. It could well be that gold may never see $1,000 again. Long ago the world’s central banks set the course for a planned collapse of the world economy to implement world government and there is now no turning back.
We have proof stretching back to 1965 that intervention by the Treasury and the Fed was taking place in the gold market. The illegal sale of gold on 10/19/87 was a good example of that. Then came the FOMC memos of the 1980s and 1990s to kill the perception that gold be allowed to reflect a policy of a weak dollar unbacked by gold. It is all there and probably more proof which our government and the Fed hides from us. We have to laugh at the smug who say why would the Treasury bother to rig the gold price? The point is they have and they are still doing it.
The perception now is that the massive stimulus put into international markets, especially US markets, will be withdrawn as interest rates are allowed to float upward. This stimulus was responsible for the stock market climbing from Dow 6600 to 10,500, a 60% leap built on monetization. If the punch bowl is removed the market will return to test 6600. In addition, the deflationary undertow kept at bay by the stimulus, will overcome monetary policy and the nation and the world will slip into monetary, deflationary depression.
The Fed is now forced to allow gold to trade higher and the dollar to fall lower. What else would one expect under current monetary circumstances? This policy will allow both gold and the dollar to play out to their full extent. The Fed’s job has been very difficult considering a fiscal budget deficit of $1.5 trillion not counting off budget items that take it over $2 trillion – a condition we are told that will persist for the next ten years. The solution has been the creation of ever more money and credit. There has been no cooperation. Nothing has worked together. All the problems have gone spinning off into a number of directions. There is no control on fiscal or monetary policy. What the players refuse to understand is that until the system is purged the situation is only going to get worse. There is no recovery. It is only an interlude in an ongoing depression.
The result will be gold at $2,500 by the end of 2010, and perhaps much sooner. The buyers know what we know. Real inflation since 1980 dictates $6,700 to $7,200 gold. Even official inflation demands a $2,400 price. In both instances how much inflation will 2010 bring? We are projecting 14% real inflation and government and the Fed keep telling us inflation is 1.2%. Our figures show 6-1/8%. In addition the fundamentals show us that gold production has been in shortfall to usage by 150 or more tons for years and that situation will worsen over the next ten years. Yes, we have hit peak gold. Interest rates rises won’t come for at least a year, if ever, and 5% growth in aggregates is in the realm of wishful thinking. Less gold is currently produced annually than in 1980 and there are trillions more dollars sloshing about the world financial system, a good part of it for speculative purposes.
Without changes in monetary and fiscal policies, gold and silver prices will just keep rising. The further our government, via Goldman Sacks, JPMorgan Chase, HSBC and Citigroup, short gold and silver and the shares, the greater price appreciation will be in the future as they ultimately will have to cover their shorts. We are at the confluence of big things happening. The fiscal debt overhand is so onerous that a ¾% rise in interest rates would mean the Fed would have to monetize another $150 billion and a 5% increase in interest rates would increase debt service interest by $600 billion additional dollars.
Yes, gold could reach $3,000 in 2010 and 2011 could bring another doubling as a result of the Fed and government just continuing what they are doing. Will inflation reach 25% or 30% in 2011? We don’t know, but as we reflect on what the Fed has been doing we say that possibility certainly exists. Could that mean $11,000 gold? Perhaps it does, we won’t know until we get there.
Even if inflation abated in 2011 or 2012 and a deflationary depression took command, gold would still be the go to investment. That is because for 6,000 years it has been the only currency that has owed no one anything. Would you really be ready to trade it for a fiat currency? We don’t think so. All bond markets as well as stock markets would have collapsed with the exception of gold and silver shares. Just look at the 1930s and see the gains Homestake had, if you don’t think gold stocks can make fortunes during a depression. Gold and silver are the investments for all seasons as long as you have patience. The banking system may collapse. What better to use than gold and silver coins for barter.
This past year we have seen lending by banks fall 16.2% y-o-y or by $600 billion. Just double that figure and you are in depression. Can you imagine what it will be like with little or no lending? Unemployment is 22.2%. Under such conditions the unemployed could be 35% or more. What do we do, let the Illuminati create another world war to cover up their machinations? The dollar is already falling and probably will eventually collapse. Could it be 1-1/2 to 2-1/2 years from now that there will be an official 2/3’s devaluation? The exchange of three old dollars for one new dollar and a 2/3’s default on all debt by all nations with one another and the revaluation and devaluation of all currencies followed by a new international trading unit made up of the top G-20 currencies weighted in an index. That is certainly plausible as the dollar ceases to be the international reserve currency.
These events could push residential and commercial values down 75% or more from their highs. All investments except gold and silver could fall 60% to 95% as they did during the 1930s. The Fed won’t be able to cut interest rates, which will already be at zero. Demand for capital will force real rates higher and bonds lower. All issuers of consumer debt will most likely go broke, as 50% of debtors won’t be able to service their debt.
Real nasty times are just around the corner and nothing can be done to prevent them. The system must be purged. More major layoffs are on the way, real wages will fall and taxes will rise. The Dow will settle somewhere between 1,500 and 4,200. We won’t know where until we get a lot closer. Companies have maintained the bottom line by firing people, offshoring and outsourcing and using illegal aliens. That method of cutting costs is approaching a threshold of diminishing returns.
The next big wave of layoffs will be municipal in towns, cities, counties and states that no longer have the reserve to pay employees. Some states, such as Florida has no funds to pay for unemployment benefits and were it not for the stimulus plan they would have stopped issuing checks a year ago. At this rate in many states municipalities will cease to function and schools, fire and police will be disbanded. That is where this is all headed. Americans have to be told the truth about what is really going on and who and what caused it and how we can fix it.
There is no question in our minds that the Fed will monetize and inflate until they cannot anymore. We see no end to increasing deficit spending. That first will perhaps bring about an Argentinean economy and if we do not come to terms with reality than it is Weimarization or Zimbabweization. When this happens everything will be out of control. Who knows where gold and silver will go, but everyone will want them. You had best make preparations now or you will be very sorry you didn’t. Remember, he who holds the gold makes the rules.