Comments on: Why You’re Wrong If You Think Gold at $2000/oz Is Unlikely… or Worse, Just a Bubble

By: Enquirica

Enquirica — Fri, 12 Nov 2010 03:43:44 +0000

Ultimately, the question is not how high gold can go, its how low fiat currency can go. While the debate about whether gold is in a bubble or whether we are in a deflationary or inflation environment continues, the monetary authorities in the developed world have embarked on a well-publicized campaign of currency devaluation via low interest rates. Central banks can control interest rates or exchange rates – not both – and they are opting for record low interest rates with little concern for the debasing consequences. There should be no debate on this matter – central banks have a perfect track record in one area and that alarmingly is in currency devaluation. The US and Canadian currencies have suffered a greater than 95% loss in purchasing power since the inception of their respective central banks.

By: Kevin@InvestItWisely

Kevin@InvestItWisely — Sun, 09 May 2010 22:58:37 +0000

Interesting, since we’ve hit back to $1200. I don’t necessarily agree with the “chicken little” thesis of gold that also usually tends to be lumped in with the “guns, ammo, and non-perishable foods” thesis. People have been saying that for decades and it has never gotten that bad, and so long as technology keeps advancing there is no reason to expect it will.

However, with that said, I do think that gold has a bright future: governments are piling on debt, and this debt is reaching the point where governments have only a few options available to them: rip off everyone else (debt haircut; currency devaluation), reduce spending (austerity measures), and increase revenue (tax hikes). The second one is the hardest one to do politically, and the third one isn’t that much easier. Therefore, I believe that the predominant way that governments will deal with this debt load is by reducing it in real terms: monetary inflation, currency devaluation.

Both lend support to a bullish trend in gold, however gold is no panacea: if you were invested from the late 1970s, you would have earned less of a return than on the stock market, even accounting for for 2000s. However, the interest rates haven’t started coming up significantly yet, so we shall see!

By: MoneyEnergy

MoneyEnergy — Wed, 02 Dec 2009 05:45:05 +0000

@Matt – this recent article by Niall Ferguson has some numbers projections about the debt, which is correlated with inflation via the increase in the money supply: http://bit.ly/6HF4mY — I don’t agree with some of Ferguson’s political framework and assumptions, but the central economic points seem valid. Not sure these numbers will help or not with your question, but could give a rough idea. Could also extrapolate based on debt-GDP levels back in 1980 when gold spiked.

By: Matt SF

Matt SF — Tue, 01 Dec 2009 00:47:08 +0000

I think Dave brings up an important point that I’ve been asking and haven’t (yet) found a suitable answer:

What price does gold have to reach today (in 2009/2010 U.S. Dollars) to equal the amount inflation adjusted damage to the dollar by 10 years from now? The USD will certainly experience inflation sometime, so how do we know if the cost of inflation isn’t already baked into the price of gold already?

I’d love more info on this if anyone else has seen the projections.

By: MoneyEnergy

MoneyEnergy — Tue, 01 Dec 2009 00:33:09 +0000

@Dave – it may not be rational in absolute terms, but neither are many investment decisions being made by certain arms of the government. But it all makes sense within respective contexts. Current indicators also say the U.S. will never be able to pay back its debt – it will only happen with greatly inflated dollars. That’s not fair to anyone else, either – so no wonder some nations would rather own gold.

By: Dave

Dave — Mon, 30 Nov 2009 19:52:55 +0000

There is NO rational justification for gold prices to exceed the marginal cost of production for a prolonged period of time. In the short term, gold can carry any sort of fear premium. But current prices say that the US dollar is only worth about 30 cents. Nonsense. The States should quietly empty out their reserves and buy back some of their dollars from foreign nations with overpriced gold. Then when the pendulum swings again, they can buy back the gold with overpriced dollars.

By: tungsten bug

tungsten bug — Sat, 28 Nov 2009 19:15:51 +0000

gold is only a fiat form of tungsten

great site

By: Daniel

Daniel — Sat, 28 Nov 2009 01:04:11 +0000

If you’re in/around Vancouver – you can check out http://icanhazgoldbug.com for several places to buy/sell gold and silver bullion, including price comparisons between the varying shops.

By: MoneyEnergy

MoneyEnergy — Fri, 27 Nov 2009 22:47:12 +0000

Yes, if even Sri Lanka’s central bank is getting in on greater gold purchasing, the likelihood of gold slumping back even down to $800 again seems really unlikely. Even if the USD rallied again due to stock market moves – the fundamentals will prevent many from jumping out of gold too soon, I believe.

By: Matt SF

Matt SF — Fri, 27 Nov 2009 19:48:34 +0000

Gold at or above $2000/oz is definitely a good possibility. I’d bet on that versus gold taking a hit, and falling back to $500/oz within the next year.

Only thing that scares me, though, is the severity of the downside once the bubble pops… if it even exists! ; )