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Gold Price to Hit $6,000 Amid Hyperinflation?

Release Date: 
Monday, January 3, 2011

GOLD PRICE NEWS - After postings its tenth consecutive years of gains, the gold price opened 2011 marginally lower at $1,400 per ounce. Weighing on the price of gold was strength in the U.S. dollar, which rallied against the euro, yen, and pound Monday morning. Despite today's weakness, the macro-economic backdrop of the gold price remains favorable as the U.S. Federal Reserve, as well as its European and Japanese counterparts, continue to employ easy monetary policies in order to reduce unemployment and stimulate economic growth.

Easy money has boosted not only gold prices, but the entire commodity complex. Copper is making yet another all-time high this morning, rising as high as $4.49 per pound. Gold's sister precious metal, silver, is climbing to 30-year highs near $31 per ounce, while oil is trading at $92 per barrel. Gold mining stocks moved higher heading into the open on Wall Street, led by the world's largest gold producer, Barrick Gold (ABX), which was mentioned in this past weekend's Barron's as one of their top picks for 2011.

The main enemy of the central banks of the developed world continues to be deflation. Policy makers are engaged in unprecedented money printing campaigns - a fact that has sent the gold price soaring to all-time record highs. With further currency debasement likely in the coming year, the outlook for the gold price - and the shares of gold producers and explorers - remains favorable.

Two of the principal drivers of the gold price in 2010 were the Federal Reserve's second round of quantitative easing and the European sovereign debt crisis - both of which continue to be present heading into 2011. As Fed Chairman Ben Bernanke and the U.S. central bank announced a second round of debt monetization in September of 2010, the gold price responded by posting substantial gains. Across the Atlantic, policymakers responded to the economic challenges facing the "PIIGS" with financial bailouts and money printing, rather than addressing the fundamental issue of excessive debt levels. As long-time gold bull John Hathaway recently commented, "Bailouts and rescues resolve nothing and have only bought time while potentially fueling inflation by further undermining confidence in the euro."

Criticism of quantitative easing has picked up in recent months as higher inflation expectations have sparked higher Treasury yields. While still low by historical standards, there are a growing number of investment strategists arguing that inflation, even hyperinflation, is on the horizon. Fed Chairman Ben Bernanke is making good on his infamous 2002 speech where he suggested deflation was not possible given the central bank's ability to essentially "drop money from helicopters." Chairman Bernanke and his aggressive deflation-fighting policies have helped fuel the ascent of the gold price.

One institutional investor worried that hyperinflation is a foregone conclusion is Egon von Greyerz of Matterhorn Asset Management. In a piece entitled "Hyperinflation Will Drive Gold To Unthinkable Heights," von Greyerz noted that there are many indicators pointing to "an imminent start of a hyperinflationary era." These indicators consist of a "fiscal gap widening at alarming rates in many major economies, commodity prices at all-time highs, long term interest rates rising, most currencies falling, and precious metals at all-time highs against most currencies."

Accordingly, von Greyerz forecasted that "realistic targets" for the gold price in the next few years are anywhere from $6,000 to $11,000 per ounce. The long-time gold price bull contends that "physical gold (and silver) will protect investors against losing virtually 100% of the purchasing power of their money." Furthermore, holding physical gold stored outside the banking system, is "the ultimate form of wealth protection both against a deflationary collapse and a hyperinflationary destruction of paper money."

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This article is independently provided by and does not represent the views or opinions of Goldline International, Inc. Although the information in this article has been obtained from sources believed to be reliable, Goldline does not guarĀ­antee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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