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Rickards: Gold May Reach $7,000-$9,000

Release Date: 
Friday, January 3, 2014

Gold and Silver Prices

Gold and silver prices started the new year in positive territory as gold rallied to a two-week high.  “A lot of people are seeing the drop as an opportunity to accumulate gold,” Miguel Perez-Santalla…said in a telephone interview. “We are seeing some traders also increase positions.” (“Gold Rises to Two-Week High on Physical Demand; Platinum Gains,” Bloomberg, 1/3/14)

Gold closed the week up $24.20, at $1,239.00. Silver prices also moved up, closing at $20.25, up $0.73.

Rickards: Gold May Reach $7,000-$9,000

James Rickards, senior managing director at Tangent Capital Parterns, believes gold “will reach $7,000 to $9,000 an ounce or possibly higher in the ‘intermediate’ term, thanks to the dollar's weakness…Gold fell 28 percent in 2013 and could drop further before the rally begins. But ultimately, the precious metal is headed higher, Rickards contends.  ‘That really is the inverse of the collapse of confidence in the dollar. The Treasury, the Federal Reserve and other central banks will have to return to gold to restore confidence…China is redefining the global gold market,’ he adds. It's purchasing all it can ‘overtly and covertly’ through smuggling and military channels, Rickards says.”

“‘We're set up for a huge technical rally. At some point you're going to want your gold, and it's not going to be around.’” (“Rickards: Gold Could Ultimately Surpass $9,000 an Ounce,” Money News, 1/2/14)

Jessop:  Economic Risks Favor Gold in 2014

Julian Jessop, head of commodities research at Capital Economics identified several factors which could bolster gold prices in 2014. “‘The consensus is that the price of gold will grind lower in 2014, at best, as the support from loose U.S. monetary policy gradually weakens.  In contrast, with investor sentiment already so heavily negative, our view is that the risks for the coming year are firmly skewed to the upside.’”

“Jessop added that that next year, a re-emergence of euro zone instability, could work to boost gold prices, as investors turn to safe havens once again.  Furthermore, worries over the threat of deflation could see higher gold prices. Although perceived by many as a negative for gold such worries could exacerbate the debt problems of weaker euro zone economies and force the European Central Bank to loosen monetary policy further, boosting gold prices.  Another supporting factor for gold will be the Fed's continued asset purchase program, said Capital Economics. Although the central bank has announced a small taper, it will still be pumping large amounts of stimulus into the economy, which should be supportive for gold, the analysts pointed out.” (“Contrarian view: Why gold will recover in 2014,” CNBC, 12/31/13)

Market Analyst Says Lower Gold Prices Are “Buying Opportunity”

Peter Boockvar, chief market analyst with Lindsey Group, told CNBC that lower gold prices provide a buying opportunity. “In gold, we've recently seen ‘more of a cyclical rather than a secular bear market.  It's been up 12 years in a row—it certainly was due for a big pullback.’”

“In December, the Fed began to taper down its quantitative easing program, by reducing its monthly asset purchases from $85 billion to $75 billion.  Yet to those like Boockvar, who believe the Fed cannot unwind the program without stoking inflation, that drop [in gold prices] actually provides a buying opportunity. ‘I don't think the Fed can pull this off. I think the exit is going to be extremely messy. Therefore, in my opinion, gold is a place to hide throughout that quote-unquote ‘messiness’.’” (“The case for ditching stocks and buying gold in 2014,” CNBC, 12/31/13)

IMF Report Warns of Inflation, “Financial Repression” To Combat Record Debt

The International Monetary Fund (IMF) published a report warning that the West’s massive debt may force developed countries to adopt extreme economic measures. “Much of the Western world will require defaults…tax and higher inflation to clear the way for recovery as debt levels reach a 200-year high, according to a new report by the International Monetary Fund. The IMF working paper said debt burdens in developed nations have become extreme by any historical measure…

“‘The size of the problem suggests that restructurings will be needed, for example, in the periphery of Europe, far beyond anything discussed in public to this point,’ said the paper, by Harvard professors Carmen Reinhart and Kenneth Rogoff…”

“The paper says the Western debt burden is now so big that rich states will need same tonic of debt haircuts, higher inflation and financial repression - defined as an ‘opaque tax on savers’ - as used in countless IMF rescues for emerging markets. ‘The magnitude of the overall debt problem facing advanced economies today is difficult to overstate.’” (“IMF paper warns of 'savings tax' and mass write-offs as West's debt hits 200-year high,” The Telegraph, 1/2/14)

Forbes: “Funny Money” Experiment in Fiat Currency is “Self-Impoverishment”

Forbes contributor Nathan Lewis reviewed the United States’ decision to abandon the gold standard within the context of an essay by famed 16th Century mathematician and astronomer Nicolaus Copernicus. In 1526, Copernicus wrote, “Money, or coinage, is gold or silver that has been specially marked — in accordance with policy established by any government or head of government — for the purpose of reckoning the prices of things that are bought and sold. Money is therefore a kind of common ‘measuring stick’ for the valuation of things. Now, whatever is taken as a measure has to be stable — must keep to a fixed limit. Otherwise, public order will necessarily be disturbed, and the buyers and sellers of things will be cheated many times over…”

Where governments turn to fiat currencies, Copernicus observed, “[Over the past century,] the money has been cheapening more and more every day, and our country through this pestilence and other catastrophes has been nearly brought to ruin. It is also well known that wherever cheap money is in use, the practice of the better arts and human talents is neglected through laziness, lack of interest and a kind of cowardly idleness, and there is no abundance of anything.”

Mr. Lewis then examined how the United States has fared since it left the gold standard 42 years ago. “The ‘inveterate habit of adulterating, pilfering, and cheapening the money’ has become our normal course of affairs, and I suspect the Federal Reserve’s present money-printing efforts will ultimately represent just another chapter in this long story.”

“We are forty-two years into our own experiment in funny money. During that time, even according to comically rosy government statistics, the median male full-time income has stagnated. Median household ‘real’ income has fallen seven percent since 2009, and is now back at a level first reached in 1988. Even that dismal figure reflects adjustment by the government’s heavily-scrubbed CPI index, which has become particularly fictional over the last decade or so. What would things look like sixty years from now, when, like Copernicus, we look back upon a century of this funny-money self-impoverishment? Probably a lot like they looked in 1526. Would this be surprising? It would not be surprising.” (“42 Years Into Our Funny-Money Experiment, What Do We Have To Show For It?” Forbes, 1/2/14)

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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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