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Gold Headed to $200 or $10,000
By Eric Hommelberg

Gold remains ultimate form of payment
US debt levels unsustainable – dollar losing status world reserve currency
Gold prices required to counter balance all US public debt held in foreign hands exceed the $10.000 mark
China, Russia calling for new world reserve currency
Gold is sneaking its way towards the $1000 barrier again which is prompting as usual the gold bears to come out swinging declaring the end of the bull market for gold. For newcomers to the gold market it’s very confusing to hear ultra bearish reports from one side calling gold prices to crash, some even predicting gold to crash below the $300 mark while from the other side they’re hearing ultra bullish reports calling for gold prices heading to $5000, some even predicting gold prices to top $10,000. Well, that’s quite a difference and sure enough some analysts will be proven terribly wrong over the next few years.

In my previous piece ‘Gold Heading for $200 or $10.000’ part I wrote a fictive exchange between a staunch gold bull and a newcomer to the gold market being fed with all bearish arguments for gold you can think of. This piece was received very well since it was a real eye-opener especially for newcomers what gold is all about and why it is so much hated by governments today. Readers having missed that piece can read it HERE.

This update is again aimed at newcomers to the gold market and shines a light on all fundamental reasons to own gold.

When I started writing about gold 7 years ago (2002) it was my aim to paint a clear picture about gold’s strong fundamentals pointing to significant higher gold prices the years ahead. I started writing a Gold Drivers Report discussing all critical drivers (declining dollar, increase demand, decline supply, negative real rates, come back in monetary system and record high short positions) that were pointing all to much higher gold prices indeed.

Now after 7 years one could easily argue that the Gold Drivers Report has been a lucky shot indeed since gold did appreciate from $250 to almost $1000 but to set things straight, I’m not writing this piece to prove up my point for the last seven years but to make the case for a record run still ahead of us. Especially during times like these where many gold bears are screaming ‘SELL’ it’s good to know where gold came from, why it did rise from $250 to $1000 in the first place and how the critical drivers that lifted gold are affected these days.

So gold bull over or $5000 gold?

Readers who have followed my work over the years know that I belong in the latter camp which calls for gold prices heading to $5000 or more within a few years. I’ve written extensively for reasons why but I want to emphasize that the primary reason for gold investing should be wealth protection, not to get rich quick. Gold heading to $5000 of course reflects the underlying weakness in our current monetary system so the basic question here is what to trust more. Should you trust your hard earned money to gold which has proven itself as the ultimate protection of wealth for more than 6000 years or should you trust the honest bankers keeping your savings in paper instruments yielding astonishing interests of slightly more than one percent? Of course all guaranteed by our beloved government that favors and guarantees a strong dollar.

The gold bears are opting for the latter since they are basically saying that gold will be losing purchasing power. Saying gold will be losing purchasing power equals saying the dollar will be gaining purchasing power. Saying the dollar will be gaining purchasing power equals saying our monetary system is healthy and functioning well.

This week in part I (point 1,2 and 3) we shine a light on our monetary system well being and is part of an extensive summary “10 fundamental reasons to own gold. Even the staunchest dollar bull will have to admit after reading this piece that all is not well in the financial hemisphere.

10 fundamental reasons to own gold

Gold remains ultimate form of payment – No counter party risk
Currency debasement – US Dollar losing status as world reserve currency
Gold crawling back into the monetary system
Negative real rates
Falling gold supply vs increased investment demand
Gold & Historic averages – gold should be trading above $2300 these days
DOW/GOLD ratio points to $5.000+ gold before 2015
Gold & US public debt – gold prices required to counter balance all US public debt held in foreign hands exceed the $10.000 mark
Large short positions – half of all central bank’s gold has been leased into the market. (about 15.000 tons). Covering these short positions is not possible without catapulting gold prices to unimaginable highs.
Gold acting as safe haven in times of rising geopolitical tensions
1. Ultimate form of payment – No counter party risk

Gold still represents the ultimate form of payment in the world." - Alan Greenspan, Testimony before US House Banking Committee, May 1999

Gold has been used as money for thousands of years, it may have even been the first metal used by humans. A funny detail concerns the oldest known map called the Turin Papyrus, an ancient Egyptian mining map 1320 -1300 BC, which is showing the plan of a gold mine together with indications of the local geology.

The bottom line is that gold has retained its purchasing power over thousands of years and therefore has proven itself as the ultimate protection of wealth. Gold has no counter party risk, gold is not some one else’s liability, gold can not be printed out of thin air, no nation has the capability to destroy the value of gold, gold does speak for itself.

Some one who understood gold’s real value against paper money very well is former French President Charles de Gaulle:

There can be no other criterion, no other standard than gold.
Yes, gold which never changes, which can be turned into ingots
bars, coins, which has no nationality and which is eternally and
universally accepted as the unalterable fiduciary value par exellence”
Charles de Gaulle
In February 1965, President De Gaulle said in a landmark press conference “What the United States owes to foreign countries, it pays, at least in part, with dollars that it can simply issue if it chooses to”.

De Gaulle not too happy with the implication of having the dollar as the reserve currency responded this way:

Since dollars could still be exchanged for gold at the time, De Gaulle instructed the Banque de France to increase the rate at which new dollars were converted to gold bullion and sent the French navy across the Atlantic to hand over dollars and pick up gold bullion in exchange. In 1965 alone, the French navy ferried back over $150 million of gold bullion thereby increasing the proportion of French national reserves held in gold from 71.4% to 91.9%.

The bottom line is that De Gaulle didn’t trust the paper dollar which were circulating in ever increasing quantities and opted for real money which is of course gold.

History leaves no doubt it. The only money that stood the test of time is gold, all other currencies have failed. Gold is the only true protection of wealth.

2. US debt levels unsustainable - Currency debasement inevitable - US Dollar losing status as world reserve currency

You may wonder why De Gaulle didn’t trust the dollar since the US had pledged the dollar to be as good as gold in accordance with the Bretton Woods agreement. The answer is simple. In the mid sixties the US couldn’t finance the Vietnam war without the help of the printing press. Needless to say the US money supply took off thereby debasing its own currency. For the US it didn’t matter since the world was forced anyhow to accept the US dollar as a reserve currency. Yes, the US promised the dollar to be as good as gold and yes, foreign central banks were allowed to exchange their dollars for gold but the US made it very clear that foreign nations exercising their right of exchanging dollars for gold would be considered as ‘American unfriendly’.

Sure enough De Gaulle wasn’t too much impressed and sent the French navy across the Atlantic to hand over dollars and pick up gold bullion in exchange. The US gold reserves were shrinking at such an alarming rate that President Nixon was eventually forced (1971) to close the gold window.

The bottom line is that countries printing their way out of debt will see its currency depreciating. A good example concerns the German Reichsmark. After World War I Germany tried to print its way out of its debt which eventually led to a worthless currency being used to heat up stoves.

Germany : Inflation 1923-24:
A Woman feeds her tiled stove with money.
She chose to feed the stove with Money because
it cost less than buying the wood with Money

A more recent example concerns the Zimbabwean dollar. Robert Mugabe called for the printing press coming to the rescue as well but we all know the outcome by now. Inflation numbers running at levels exceeding 200 million % aren’t exactly reflecting a strong currency showing off much confidence.

What we are witnessing these days is a massive currency debasement on a world wide scale. A trillion dollars bailout here, a trillion dollars bailout there, all done with money that does not exist but extracted from the printing press. All this freshly printed money is adding of course to governments ballooning debt which can only be paid back by issuing even more funny paper notes..

Since most countries world wide are fighting the derivative fall-out with fresh printed money (most countries are running their printing press at double digit numbers these days) their currencies will not devalue much against each other..

So in which currency to park your hard earned money then if all major currencies are debasing at the same time?

The answer is quite simple, the one and only true alternative remains of course gold which can not be debased at will.


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