Wednesday 9th January 2008 12.44 pm: "RED LETTER DAY #3"
Gold has made another jump this morning. Now, looking at the live charts on Bullionvault.com and more notably goldpreciousmetals.com, I can see that the price is at a number of milestones. This has happened before at a lower level when gold was at the 500 Euro level a while ago. However, this time the round figure levels are more impressive and they all seem to be happening together.
The levels are 900 US Dollars, 600 Euros, 450 Sterling, 100,000 Japanese Yen, 1,000 Australian Dollars, 900 Canadian Dollars and 1,000 Swiss Francs. Add to those 6,000 South African Rand, 10,000 Mexican Pesos, 35,000 Indian Rupees and 6,500 Chinese Yuan for good measure. What a list! The only ones currently exceeded as I write is the Euro, at €600.33, and the Rand, at ZAR 6027.10, quoted on Kitco right now. Oh by the way, it also just passed 1500 Brazilian Reals and 20,000 Russian Roubles!
If these levels are broken through to the upside, will that be significant psychologically? And will it mean support or resistance, buying, selling or holding? Or is it all irrelevant compared to the 'magic' US$1,000 level that is still more than 10% away?
James Turk said to Jim Puplava on financialsense.com last weekend (about 514 minutes into this mp3) that he expected gold might go to $1500 and then pull back to $1200 sometime in 2008. Jim Puplava himself thinks over $1000. Kitco's John Nadler sees a serious correction, probably due to a sudden recession in the economy and jewellery demand dropping through the floor. After all, people are lining up to sell their gold trinkets as in 1980. However, in 1980 the selling of silver for instance was mostly after the peak and into 1981, not before the peak - and we are still going up right now. Jim Sinclair would say that jewellery demand is pretty irrelevant because gold is a (pardon me, "THE") currency - and investment "currency" demand for gold will trump jewellery demand anytime when the going gets tough, like 1979-80 and now. James Turk compares this present period to 1974 rather than 1980. That has an interesting implication. Firstly, gold and commodities peaked and then there was a major correction at a similar time to when the stock market crashed in 1974. Gold lost 48% from $198 to $103 over the next couple of years, before making its second ascent into $850 in 1978-1980. His comment implies that we are still in the first half of the bull market and that his $1500 target is the peak of the first half.
Personally, I see gold at $1000 this January rather than 'sometime this year'. If we see a major banking institution go down (not just a realtively minor ex-local building society like Northern Rock but a famous high street or investment bank 'name') then possibly the next 10% on gold to reach $1000 would be a small part of the up move and $1500 is not at all outrageous. Even if we don't, it may be only because the central banks will pump trillions of $ equivalent into their respective banking systems to save the necks of these dreadful financial institutions, which should all be allowed to sink without trace to be replaced with gold money again. They will however unfortunately be saved if at all possible, which will be at public expense one way or another. The cost will be met with huge inflation, maybe hyperinflation, and the effective wiping out of the value of everyone's savings and pension schemes, even if nominal values don't fall.
Now gold is (safely?) over treble its low in US dollars and double its low in Sterling (when that idiot Gordon Brown sold 60% of the UK's gold at $274 an ounce), another doubling or trebling in the next few years is feasible. Ditto for oil. Personally, I think we will see large currency devaluations as well with major inflation and we can easily see $10,000 gold, $1,000 oil, $300 silver and $1000 uranium. Bookmark this page to see if I'm right.
An interesting thought is that a move by one single country to go to a gold backed currency while the Western financial system is in unprecedented crisis, could be a mega-winning strategy in terms of attracting inward investment and economic strength. Will it be China? Will it be Russia? It would have to be a nuclear armed nation, otherwise they would be crushed with the US military boot.