October 6, 2009
NIA Says Gold Could Rise to $5,400
Gold hit a new all time high today of $1,044 per ounce and it looks like this break out above $1,000 could be permanent. While this may be a new all time high in nominal terms, adjusted for inflation gold's high in 1980 of $850 equates to $2,300 per ounce in today's dollars. We believe the inflationary crisis we are rapidly approaching will be much worse than the inflation of the 1970's. Therefore, $2,300 per ounce gold could be here sooner than anybody thinks is possible.
There are news reports today that Saudi states are meeting with countries like China and Japan in order to end dollar-based oil transactions and begin transacting oil using a new basket of currencies. It is the U.S. dollar's status as the world's reserve currency and the fact that foreign nations are forced to trade oil and other commodities in U.S. dollars, that has kept the U.S. economy propped up until now.
Up until today, foreign countries have been forced to hold huge U.S. dollar reserves which has allowed the U.S. to sell an increasing supply of U.S. Treasuries and thereby export its inflation to the rest of the world. Soon, foreign countries will no longer have a reason to hold U.S. dollars and there will be no interest in buying our debt. Almost all of the U.S. government's deficit spending will have to be paid for by outright money printing by the Federal Reserve.
You will likely see the mainstream media proclaim a "gold bubble" soon, but the only true bubble we have today is a "dollar bubble". In recent years, we have seen a rise of precious metals recycling companies like Cash4Gold that have encouraged Americans to take advantage of purported "high gold prices" and trade in their gold for U.S. dollars. Those who got suckered into trading in their gold for U.S. dollars will soon realize it was the biggest mistake of their lives.
The mindset of America is about to change as Americans wake up and realize how rapidly the U.S. dollar is losing its purchasing power. No longer will gold be looked at as a risky and speculative asset. Instead, there will be a rush into gold as the safest asset of all. The new mindset will be that you can't afford not to own gold and you can't own too much gold. You will be looked at as crazy if you don't own gold.
During gold's last bull market, gold prices rose from $35 to $850 for a gain of 2,329%. From gold's low in 2001 of $255.95 per ounce, that same percentage gain during the current bull market would send gold to $6,217 per ounce. The other way to look at gold's valuation is compared to the Dow Jones stock index. In 1980 the Dow Jones to Gold ratio bottomed at 1, meaning the price of gold matched the Dow Jones. If gold and the Dow Jones were to meet at the median of their current levels, we would be looking at $5,400 per ounce gold.
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