Gold to $10,000 – Never say never

Long term gold price targets get more and more optimistic with some respected analysts seeing $10,000 gold ahead – this may seem unlikely but only a few years ago $1,000 gold seemed out of sight!

Author: Lawrence Williams
Posted: Thursday , 18 Oct 2012  via mineweb.com

LONDON (MINEWEB) –

A remark on another website by Mark O’Byrne caught my eye –“Longer term, respected analysts are calling for gold prices above $5,000/oz and much higher forecasted prices such as between $5,000 and $10,000 per ounce are not raising eyebrows as much as they have in the past.” Indeed with even many of the ultra-conservative bank and fund analysts suggesting that gold will reach $2,000 or even higher within the next year, or even the next few months, certainly $5,000 or even $10,000 should not seem out of sight in some unspecified timeframe.” 

If one tracks the price of gold during its current bull run it has risen around 600 percent in 13 years – at the same pace of increase it could thus reach $12,250 in another 13 years – or by some time in 2025! Thus is it ridiculous to suggest that this huge valuation on an ounce of gold is achievable? Never say never! When I started managing and writing for Mineweb back in 2006 even $1,000 looked completely out of sight and people like Rob McEwen who then were predicting that level were perhaps considered at the extreme end of the spectrum. Yet within 3 years the $1,000 level was achieved and now it is a further 75% higher than that a further three years on. Nowadays, McEwen is predicting $5,000 gold – should that still be considered over extreme?

The big question obviously is how long the bull run will continue. There are those who reckon that gold is in a bubble – perhaps it is. But bubbles can increase enormously in size before they pop and gold could still be in the early stages of this, and unlike a bubble it is never seriously likely to return to the starting point of its huge rise. The gold price has expanded in a direct relationship with money supply growth (which suggests that it is, in reality, only moving counter to the decline in currency values caused by currency printing.

Take Ben Bernake’s famous quote of 2002 “Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.”

Even though he may have seemed to have been against it at the time, that is precisely what Bernanke has done. He has effectively devalued the dollar through QEs 1-3 so it cannot be seen as surprising to anyone that the gold price has risen against the dollar – or conversely that the dollar has fallen in value against gold. Bernanke is a good economist and he sees the only way of getting the U.S. out of its enormous debt crisis, and ward off deflation, is ultimately to inflate its way out of the problem in a controlled manner – however long it takes and regardless of any unintended consequences – or unknown unknowns as Donald Rumsfeld would have called them. The real question is can he continue to manage the downgrading of the dollar without the U.S. economy descending into hyperinflation, while at the same time pretending he isn’t doing that to try and preserve some semblance of value for the greenback vis a vis the other major currencies?

Perhaps luckily for Bernanke, those Central Banks controlling most of the currencies against which the dollar is valued on the markets have followed suit and are doing precisely the same thing. So the dollar index is not falling against its peers, but the dollar has been falling against gold, perhaps the one monetary unit out there which can show the true picture (in theory as long as the gold price in dollars is itself not being manipulated to make things look better than they actually are).

Governments don’t like gold because it shows up their economic policies for what they are and defines the devaluations of their currencies in a way no other measure can. There are those who believe that governments, central banks (however independent they may be in theory) and their banking allies combine to suppress the gold price to muddy the waters in this respect – and, as we have pointed out here given that governments manipulate currency parities to suit their economies (note the Chinese, Swiss and Japanese among others), if gold is viewed as a currency then there’s no reason why this should not be manipulated to the presumed advantage of the Central Banks too.

But there’s only so much governments can do – hence the seemingly inexorable rise in the gold price over the past decade – a rise that is likely to continue in the years ahead – so again $10,000 gold has to remain a possibility however unlikely this may seem at the moment – not in

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