Gold double price every 3 years

www.thegoldforecast.com

On July 11, 2011 I said “one only needs to take a look at the big picture to understand how futile any long-term bearish stance is! It was my belief then that gold would soon trade to a new record top. Gold was at 1543, a far cry from multiple new record tops,  and $1624 new record high hit yesterday.

Where's gold headed? To infinity and beyond? Not quite, however it is my belief that over time gold prices have nowhere to go but up. This fact I believe was set in motion when the gold standard was abolished in the 1970s. Starting with United States, this monetary policy would soon be adopted globally. Gold now stands as the definitive benchmark by which all other currencies are measured. Simply put: gold is the new currency of choice.

We need not ask if gold will go to 2000, but rather when gold will reach at $2000 per ounce. I see $1800 gold by the beginning of 2012. $2000 gold?,  I believe by 2013. A tremendous stretch ?, consider the following:

In my first commentary for Kitco.com (10/2010)  I suggested that gold was in a super bull cycle. The chart above is a weekly chart of cash gold. Since 2008 gold has been doubling roughly every three years. It took gold five years (from 2002 to 2007) to double in price (300 to 600). From 2007 to 2010 gold would double again from 600-1200.

I believe we are fully immersed in a 13 year super bull cycle. This cycle began in 2002. Entering its strongest phase in towards the end of 2008.  Then gold was trading at just  $800 per ounce. It would take about 3 years for gold to double. The fruition of that fact was realized this month, when gold reached a new major benchmark “$1600 per ounce”.The progression of doubling every 3 years countinues.

There can be only one conclusion derived from this data: First: We are witnessing the greatest rally ever witnessed in the precious yellow metal. Secondly, based upon this data if gold doubles from 1000 to 2000 within 3 years, as it has since 2008, it should only take another two years (2013) to reach $2000.

The chart below plots relative price movement over a year and extends that price gain forward. Based on this pattern, I believe we will see $1800: dollar gold by the end of 2011 or the beginning of 2012.

We have been witnessing not only an acceleration in price but also a tremendous acceleration in time. Chart 3 (below) clearly illustrates this. Gold has been has been consistently doubling about every three years. Further evidence that $2000 gold by 2013 is highly probable.

Silver

Although it has been gold that has making new record highs, it is silver that has outperformed all of the other precious metals in terms of percentage price gains. Over the last year and a half, silver has increased in value more than any other precious metal. Currently silver is experiencing some resistance at $41 per ounce. My long-term view of silver is in tandem with my gold forecast. That is to say that over time new record highs will be reached. I would not be surprised to see $70 silver by 2013. There are three major pivot points or benchmarks silver will have to overcome before surpassing its all-time high. Based upon the Fibonacci retracement from the recent correction of $50-$32, the major pivot points are $41(50%), $43 (61%) and 46 (76%) dollars per ounce.

The hard truth is that the fundamental factors driving gold higher do not exhibit very  much faith in the monetary and budget policies of the European Union and the United States. Best characterized as a short sighted this disposition of spend now and pay later cannot effectively go on forever. At some point the bill must be settled.

”I will gladly pay you on Wednesday for a hamburger today” the trademark saying of a 1960s cartoon character, must not be the principal by which major countries define their fiscal, economic and budget policies

Are the Bulls dancing? According to a Japanese proverb “We're fools whether we dance or not, so we might as well dance.”  And dance we will. 

Ten Signs The Double-Dip Recession Has Begun

1. Inflation

There is almost nothing that damages consumer confidence as badly as a rapid rise in prices.  Starbucks recently increased the price of a bag of coffee by 17% because wholesale prices have risen by almost twice that rate in the last year. Cotton prices nearly doubled in 2010 but has fallen this year. But, apparel is made months in advance of when they reach store shelves. Summer clothing prices are up as much as 20%. That may change in the fall, but for the time being, the consumer’s ability to buy even the most basic clothing has been undermined. Consumers today pay more for sugar, meat, and corn-based products as well.

2. Investments have begun to yield less

Part of the recovery was driven by the stock market surge which began when the DJIA bottomed below 7,000 in March 2009. The index has risen above 12,000 and the prices of many stocks have doubled from their lows.  As result, American household nest eggs that were decimated by the collapse of the market have rebounded and enabled people to splurge on themselves. However, the market has stumbled in the last quarter. The DJIA is up only 1% during the last three months and the S&P 500 is down slightly. Americans, though, have have few other places to put their money.. Ten-year Treasuries yield about 3%. Gold was a good investment over the last year, but it has begun to falter as well.  The market may not be a friend to investors for quite some time.

3. The auto industry

The auto industry has staged an impressive comeback, although its profitability is based as much on the layoffs it has made over the last five years as generating new sales. GM and Chrysler have emerged from bankruptcy. Year-over-year monthly sales improved late last year and through April. May sales stalled.  GM’s revenue dropped by 1% compared to May of 2010. Ford’s sales were down about as much.  There are many reasons for this trend including high gas prices and the constrained manufacturing capacity of the Japanese automakers because of the earthquake. Consumers also may be deferring big purchases because they are worried about their economic prospects.  Slow car sales are not just a sign of lagging consumer confidence. They also may be a harbinger of tougher times ahead. These companies shed several hundreds thousand jobs before and during the last recession. Car firms have only just begun to hire again, but that trend will die with a plateau in sales.

4. Oil prices

Oil prices are supposed to drop as the economy slows as they did in 2008 and early 2009 when crude fell from over $140 to under $50. That drop at least allowed consumers and businesses like airlines to more easily afford fuel. Recently, crude has moved back above $100 and appears to be stuck there regardless of the economic situation. American budgets have been hurt by the rising cost of gas. Americans of more modest means have been particularly affected. A slowdown in driving usually also leads to a decline in the retail sector as consumers reduce unnecessary travel to stores. The impact on other businesses is just as great. Airlines suffer and so do firms which rely on petrochemicals. OPEC, for now,  has signaled it will not increase production.

5. The federal budget

The federal budget deficit has decimated any chance for another economic stimulus package which many prominent economists like Nobel Prize winner Paul Krugman say is essential to create a full recovery. His theory has become more of an issue as GDP growth slows to a rate of 2%. The first $787 billion Obama stimulus package may have saved some American jobs, but it is long over and did not work if a drop in unemployment and a sharp improvement in GDP were its primary goals. The deficit has caused a call for severe austerity measures which have already become  part of the economics policies of countries from Greece to the UK to Japan. Job cuts in the U.S. will not be restricted to the federal level. A recent UBS Investment Research analysis predicted that state and local governments will cut 450,000 jobs this year and next. That process is already well underway. States like California and New York currently run massive deficits and the rates they must pay on bonds has risen accordingly. Newspaper headlines almost daily report on battles between state unions and governors over employment and benefits.

6. China Economy Slows

A slowdown in the Chinese economy is usually seen as a cause of global commodity price inflation, but the effects cut two ways. China’s appetite for energy and raw materials may fall. But, the demand for goods and services by its very large and growing middle class drops as well. Chinese purchaser manufacturing and export numbers have fallen as the central government has tightened the ability to borrow money. US exports to China are key to the health of many American businesses. John Frisbie, the president of The US-China Business Council, recently said, “Over the last decade we have seen exports to China rise from $16.2 billion to $91.9 billion – a 468 percent increase.” As that rate slows, it has a profound effect on tens of thousands of American companies and their employees. US firms with large operations in China are also effected. GM is one of the two largest car firms in China along with VW. Large US corporations like Wal-mart and Yum! Brands rely significantly on China to boost global sales.  Without vibrant consumer spending in China, American companies will suffer.

7. Unemployment

Unemployment creates two immediate problems.   People without jobs drastically curtail their spending, which will ultimately affect GDP growth. The second is the need for tens of billions of dollars every year in government aid to keep the unemployed from becoming destitute. That support has increased deficits and the domino effect is that cash-strapped governments need to make more spending cuts. It may be the biggest challenge the economy faces. Unemployment has worsened because people over 65 to continue to work because the values of their homes–which they once counted on as the financial basis of their retirements–have dropped so sharply. Older Americans also fear that cuts in Medicare and perhaps Social Security are inevitable which increases the cost of their golden years.  The jobs that older Americans have taken are often ones that younger Americans might have. People in their 20s must accept low wages to enter the workforce.  This has delayed their prime consuming years well into their 30s which will damage GDP recovery now and for another decade. The worst of the unemployment problem is the roughly 5 million Americans who have been unemployed for over a year. Their unemployment benefits have run out in many cases.  The burden of their care falls to their families, friends, community organizations, and non-profits. A family which has to support an unemployed person may be a family which cannot spend beyond its basic needs. To the extent that the federal or state governments can support the unemployed, the cost to run support programs increases.

8. Debt Ceiling

The United States debt ceiling,currently at $14.294 trillion, will probably be raised before the government has to cut back essential services on August 2. It might seem that the economic and employment effects of the debt cap are the same as the deficit, but they are actually more insidious and longer term. The first by-product of debt reduction, or at least a slowdown in its growth, is a combination of higher taxes and a lower level of government services. Higher taxes usually slow economic improvements, particularly when they are not couple with stimulus measures. A number of economists have pointed out the expense reduction alone will not sharply improve the United States balance sheet. The increase in Medicare and Social Securities costs, brought on  by an aging population, are also likely to trigger a need for higher taxes. Tax increases could keep the economic growth of the US on hold for years. The taxation of companies decreases and often eliminates profits, particularly during an already troubled economic period. Profits which disappear usually cause cuts in purchasing and jobs. Taxes on wages and inheritance undermines consumer spending. And, a growth in national debt from already all-time highs will increase the borrowing costs of the US. That, in turn, drives up interest rates for everything from mortgages to credit cards.

9. Access To Credit

The lack of access to credit has hurt the economic activity or both individuals and small businesses. Many very large companies can borrow money at rates as low as 2% because of their strong cash flows and balance sheets. Banks have been much less willing to loan money to companies with under 100 workers because these firms often rely on a few customers for revenue and usually have very little money on hand. Early in June, the House Small Business Committee held hearings and among its findings were that concerns about risk and a slow economy has made financial institutions reluctant to lend to small businesses, the main driver of economic growth. Committee Chairman Sam Graves (R-MO)  said Congress will need to “bridge the gap” between the two sides. There is no plan to accomplish that. Individual borrowers find themselves in a similar position. The cost of credit cards debt is still above 20% in many cases although the Federal Reserve loans money to large financial firms for interest rates close to zero. Potential home buyers, who might help break the gridlock of slow house sales, often find that banks want down payments as high as 20%. The median down payment in nine major U.S. cities rose to 22% last year on properties purchased through conventional mortgages, according to an analysis done for The Wall Street Journal by real-estate portal Zillow.com. That percentage doubled in three years and represents the highest median down payment since the data were first tracked in 1997. Home which are not sold often put such great burdens on owners that they are barely consumers of the goods and services that drive GDP. Home builders have continued to struggle. Construction jobs, which were a huge amount of the employment base in states like Florida, have not returned.

10. Housing

Housing is considered by many economists to be the single largest drag on the American economy, and the housing market has gotten much worse in the last two months. A report from The New York Federal Reserve published early this year said that “When home prices began to fall in 2007, owners’ equity in household real estate began to fall rapidly from almost $13.5 trillion in 1Q 2006 to a little under $5.3 trillion in 1Q 2009, a decline in total home equity of over 60%.” Real estate research firm Zillow reported on more recent developments. “Negative equity in the first quarter reached new highs with 28.4 percent of all single-family homes with mortgages underwater, from 27 percent in Q4.” Many homeowners who want to sell their homes cannot do so because they cannot afford to pay their banks at closing. Whether for good or ill, the American home was the primary source for money used for retirements, college educations, and the purchases of many expensive items such as cars. Economists point out the this leverage helped contribute to the credit crisis as people could not cover the costs of home equity loans as real estate values collapsed. This may be true, but the drop in value happened so quickly that the balance sheets of millions of Americans were destroyed. Their ability to consume was severely damaged, further harming GDP. High mortgage payments bankrupted or nearly bankrupted people who have lost jobs or have found that their incomes had stagnated. The building industry became a shambles overnight. And, whatever the effects have been over the last three years, they are getting progressively worse as home values drop to decade lows. There is no relief in sight because potential buyers worry that price erosion has not ended.

Read more: Ten Signs The Double-Dip Recession Has Begun - 24/7 Wall St. http://247wallst.com/2011/06/06/ten-signs-the-double-dip-recession-has-begun-2/#ixzz1TaNdZclT

How far can the gold rally go in 2011?

NEW YORK (Commodity Online): As Gold hits a record $1625 an ounce, analysts have pegged their forecasts higher for the end of the year.Precious metals economist and Managing Director of American Precious Metals Advisors, Jeff NIchols had already predicted $1700 per ounce for gld by end of 2011 which now looks within easy reach.

Dr Edel Tully, UBS Bullion bank precious metals strategist has forecasts $1,800 by Christmas as gold is in deficit for 2011 as a result of moderate mine-supply growth, a lower level of recycling than in 2009 and the steady buying of gold by central banks.

Official statistics published monthly by the IMF show that central banks, as a group, have been busy buying gold. Russia, India, China, Saudi Arabia, Mexico, and Brazil have been among the big buyers in recent years and a number of other countries have added smaller amounts of gold to their official reserves. One big surprise was Mexico’s purchase of some 100 tons earlier this year as a hedge against the possible decline in the value of their U.S. dollar reserve holdings, according to Jeff Nichols.

The UBS precious metals analyst expects central bank buying currently at 150 tonnes in 2011-year to date to challenge the level of 282 tonnes of 1988.

This time around the US debt crisis and the financial uncertainties around the world have not induced frenzied buying of gold, according to a report in Financial Times.

"However the debt crisis has not sparked frenzied buying in the bullion market to the same extent as in April-June 2010, when fears about the eurozone hit the market, or in January-April 2009, during the depths of the global financial crisis."

"Sales of bullion coins, such as the popular American Eagle, have not picked up significantly over the past few weeks, signalling restrained retail buying. This month, the US Mint sold 60,000 one-ounce American Eagle Gold coins, at par with last month’s level and below the 107,000-108,000 coins of April and May."

Gold fund portfolio manager Tom Winmill agrees gold will lose some of its luster in the short- term, but he sees the price hitting $1,800 an ounce by the end of next year.

Should European and US debt problems fade, there would be no reason for gold to remain at record highs, but any downside would cause strong physical demand, irrespective of whether or not it takes place inside or outside the high-demand Indian wedding season.

The fear factor is prompting Europeans to buy significantly more small gold bars and coins and an investor angle is also present in Indian gold jewellery buying,according to a report in Mining Weekly.

Louise Yamada: Gold to skyrocket to $5200; Silver to hit $85

LONDON (Commodity Online): Will Silver price skyrocket to $85 per ounce? Can Gold surge to $5200 per ounce? Gold and silver prices at these astronomical levels may seem unrealistic and without fundamentals. But renowned technical analyst on bullion Louise Yamada says the hot precious metals gold and silver could go to these whopping price levels in the years to come.

In an interview to King World News (KWN), Yamada said on silver: “We hit part of our silver targets at $50, (expect) $65, even $80, $85 over time. We had an 88% rally in a very short period of time from January and a one third retracement, 34% down, so that was pretty normal. We saw some support at $33 and would loved to have seen it go sideways a little bit longer to be honest with you.”

On gold, Yamada’s speculation went like this: “Gold continues to be in an uptrend in our work. You had a little bit of a consolidation, seasonality would suggest a rise into the fall. The primary support level remains at $1,475 … Our next target is $2,000, and we did a gold special in our last piece that suggested from a very long-term perspective … we could see $5,200 on gold.”

Yamada is known as one of the world’s finest technical analysts on commodities and equities. She began her career as director and head of technical research at Smith Barney. Yamada now leads her own global research company called Louis Yamada Technical Research Advisors.

Does Yamada expect gold and silver prices to touch $5200 and $85 respectively this year? No, she did not offer a timeframe for her price targets on gold and silver prices, but said her next target for silver is for a double “over time” from the $40 print.

“I think that one of the observations that one has to take into consideration is that with each of the Euro financial crises and our own financial crisis in 2008 to 2009, the dollar has rallied less!” she said.

“In other words you had a rally in 2009 that carried 25%,” Yamada explained. “Then, in early 2010, the rally was only 19%. And the second one in 2010 was only 7%. And this time, you haven’t even seen 7% with the crisis that has evolved. So that suggests to us that it (the dollar) is becoming less and less considered a really safe haven.”

Why the big gold spike is yet to come

NEW YORK (Commodity Online): Fund managers often shy away from gold. They believe it is better to invest in “productive assets” rather than gold.

Would you rather have a 67-foot Gold cube made of all the bullion in the world, or all the farmland in the US, ten Exxon Mobils and $1 trillion in walking around money? - Warren Buffet

His point being that Gold is not a productive asset. It just sits. Its value is entirely dependent on the whims of buyers.

However, things are changing. As the world economic outlook grows weaker and weaker; the drive for these funds becomes not capital appreciation but capital preservation.

“Central banks are printing more money than they ever have, so what’s the value of money in terms of purchases of goods and services? I look at gold as just another currency that they can’t print any more of” said Kyle Bass, the well-known Hayman Capital hedge fund manager

Institutions and Large managed funds keep about 1% of their total assets in gold. But “If these colossal funds start getting the idea that holding 5% of their portfolio in gold is more conservative and intelligent than holding the current average of 1%, what will this mean for gold demand? The answer is obvious and the ramifications huge” says Ron Fricke, President of Regal Assets.

If these endowments and private foundations were to increase their conservative gold holdings from 1% to a mere 5%, there would be a requirement of over 1000MT of gold. That is more than 200% of China’s yearly production!

According to a report from the Gold Council, the total supply for gold in 2010 was 4155 tonnes. An additional 1000 tonne demand would obviously skyrocket the prices and send the markets into a buying frenzy.

The University of Texas, the second largest endowment fund in the US, added about half of a billion dollars worth of gold to its portfolio in May, on top of the half-billion it purchased several months prior. Is this an indication of things to come?

“Basically you have a very orderly rate of increase. If you go back to 1979 gold doubled in a single year, well it hasn’t doubled in any year in the last ten years. So as this move is ending it’s conceivable to me that you are going to see a doubling of the gold price from some higher level, but I feel very good about the sustainability of the current action in the gold price” said John Hathaway the prolific manager of the Tocqueville Gold Fund on King World News.

“Gold is up (roughly) 13% year to date, if you tack on another 10% in the second half that is not unsustainable in terms of the macro picture that I see. What’s going to drive it (gold) crazy is when institutional buying starts to take place, and we really haven’t seen that (accelerated) sovereign wealth and (accelerated) central bank buying. That still lies out there and that’s the fuel that’s going to get the gold price up to numbers that I’m almost afraid to mention on air or in print.” He went on to add.

Gold prices may hit $10,000 per ounce in 2025

PRLog (Press Release) – Jul 28, 2011 – Gold prices may hit $10,000 per ounce in 2025 
Global gold production is declining as demand and prices has accelerated 
Albanian Minerals CEOsahit Muja said "Gold prices may hit $10,000 per ounce in 2025 as global population is expected to increase to 8 billion people. 

Gold prices has increase from $35 in 1934 to $1616.80 an ounce in July 28, 2011. 
If gold prices increase 50% each year the price of one ounce of gold will be $10,000 dollars 
The gold prices has increase an average 50 per cent each year since 1934. 
Gold is the most important monetary currency throughout the world's history. 
Gold production is declining compered with growing demands. Global gold production was 2500 tonnes in 2010. 

The list of countries with gold reserves: 
Albania,  Algeria, Ecuador Korea, Republic  (South) Rwanda . Argentina,  Equatorial Guinea,  Kyrgyzstan,Kosovo. 
Saudi Arabia, Armenia , Eritrea,  Laos,  Senegal , Australia, Ethiopia, Liberia, Serbia ,Belize, Fiji, Madagascar, Sierra Leone. 
Benin,m Finland, Malaysia, Slovakia, Bolivia, France, Mali, Solomon, Islands, Botswana, French, Guiana, Mauritania, South Africa. 
Brazil, Gabon, Mexico, Spain, Bulgaria, Georgia, Mongolia, Sudan, Burkina, Faso, Ghana, Morocco, Suriname. 
Burma (Myanmar), Guatemala, Mozambique, Sweden, Burundi,  Guinea, Namibia, Tajikistan . 
Cameroon, Guyana,  New Zealand, Tanzania, Canada, Honduras, Nicaragua, Thailand . 
India, Niger, Turkey, Chad, Indonesia, Nigeria, Uganda, Chile, Iran, Oman, United States . 
China, Italy, Papua New Guinea, Uruguay, Colombia, Jamaica, Peru,  Uzbekistan . 
Japan, Philippines, Venezuela, Costa Rica, Kazakhstan, Poland, Vietnam, Cotd’Ivoire (Ivory Coast), Kenya, Romania and Zimbabwe . 

China is the world largest gold producer with 350 tons of gold may be produced in 2011. 
Australia is the world second largest gold producer with gold production of 255 tonnes in 2010. 
Australia remains 20% below its level of production of 1998. 

The U.S. production of gold has been declining since 1998 (-37%) until it has stabilized around 230 tonnes in 2011 . 
Gold production in South Africa has bee decline. 
South Africa  was the world top producer of gold in 2005 but after almost a century of hegemony, its ranking declined to fourth position in 2011. 

Gold production in South Africa has decreased by 80% within the last 40 years. 
Russia gold production is about 190 tonnes in 2010. 
Gold production in Peru is still below its peak production of 2005 ,208 tons of gold with 170 tonnes of gold produced in 2010. 
Indonesia produced 120 tons of gold in 2010, -27% since its peak production in 2006. 
Canada remains well below its level of production of 1990 176 tons of gold with 90 tonnes of gold produced in 2010. 

The gold producing countries Argentina, Bolivia, Brazil, Chile, Colombia, Ghana, Kazakhstan, Mali, Mexico, Morocco, Uzbekistan, Papua, Philippines, Tanzania,  account for more than a third of the world gold production in 2010 against less than 10% in 1970. 
Albanian Minerals CEO Sahit Muja  said "To find new deposits of gold, mining companies must invest more in infrastructure and drill deeper into undeveloped arias to find the last remaining of gold". 

"Gold prices and demand is expected to increase  from lots of factors, from increase in the world population and the decline of the gold production , from devaluation of currencies and geopolitical problems". 

Is Gold Crash Proof This Time Around?

I’ve been
receiving quite a few emails regarding the topic of Gold and how it will
perform if another Crash hits. The following are my thoughts on this matter.

The first
thing that needs to be said is that IF we have another systemic meltdown like
that of Autumn 2008, Gold will likely go down along with everything else. There
are simply too many big players (hedge funds, investment banks, etc) with heavy
exposure to Gold who would be forced to liquidate their positions during a
systemic collapse.

I know this
is not what the Gold bugs want to hear, but during systemic Crises, just about
every investment on the planet plunges while the US Dollar and Treasuries
rally. Of course, this time around if another 2008-type event hits, it will
undoubtedly involve or be focused on sovereign debt. So this raises the
potential that Treasuries, particularly those on the long-end of the yield
curve, could be hammered as well as all other assets outside the Dollar. This
is worth keeping in mind for those who view Treasuries as a safe haven.

So if we go
into a 2008-type event, Gold will fall.
It will likely fall much less than other assets (stocks and industrial
commodities), but it will still go
down at least at first. This forecast is confirmed by the market action in 2008
as well as the market collapse from April 2010-July 2010. Both times Gold took
a hit, but both times it came back quickly.

So if you’re
heavily exposed to Gold, you’re going to need to think “big picture” or have a very
strong stomach when the market Crashes.

Now, let’s
take a look at the charts.

For
starters, the number one metric you need to focus on in terms of determining
Gold’s market action is the 34-week exponential moving average. Since the Gold
bull market began in 2001, this has been THE support line for Gold.

As you can
see, Gold has only broken below this line ONCE in the last ten years and that
was during the 2008 systemic collapse. So take a note of this line and always
watch where Gold trades relative to it.

Indeed, a
significant break below this line that DOESN’T occur during a system Crash
would be a MAJOR warning that the Gold bull market is in trouble. Remember, the
ONLY time we took this line out before was during the systemic collapse in 2008.
So a break below it WITHOUT a Crisis would be VERY bearish.

And if Gold
breaks below this line on its own (without a Crisis) and then fails to reclaim
it… well, then it would be SERIOUS time
to reevaluate the Gold bull market story.

Because of
its significance as THE support line for the Gold bull market, the 34-week
exponential moving average also serves as an excellent gauge for determining
when Gold needs to take a breather or correct.

Indeed,
anytime Gold has stretched too far away from this line to the upside, it has
usually staged a pretty sharp reversal to re-test this line. I’ve circled the
most significant episodes of this from the last seven years in red on the chart
below.

These are the BIG picture gauges and items
to take note of: the points to remember in terms of determining where Gold is
in its bull market and whether it’s an asset class you want to “buy and hold.”

Gold’s Long March Upward Continues

Despite gold's recent run up to new historic highs, I believe the yellow metal's price has far to go - both in future percentage appreciation and duration before the great gold bull market comes to its ultimate cyclical end.

Right now, there is no evidence of a buying frenzy to suggest we are anywhere near a long-term top . . . but there are plenty of rock-solid fundamentals that suggest the market is healthy with plenty of room to move higher.  Moreover, the world economic and geopolitical environment remains very supportive - and seems likely to remain pro-gold for years to come.

My forecast, published on NicholsOnGold and in other speeches and reports, of $1700 gold by year-end 2011, now seems within easy reach.

And this is just the beginning of gold's next great leap upward, a leap that will carry the metal to $2000 an ounce in 2012 - with prices heading still-higher, quite possibly to $3000, $4000 and maybe even $5000 an ounce by the mid-to-late years of the decade.

From a long-term perspective, gold prices near $1500, should we ever return to that level, $1600, or even $1700 an ounce will prove to be bargains.

As I have cautioned in the past, expect high two-way price volatility and periodic sharp corrections, corrections that some will mistake as the end of the bull market - but consider these opportunities for "scale-down" buying, opportunities to acquire additional metal at bargain-basement prices.

A PAUSE THAT REFRESHES

Rising some $300 an ounce from its January 2011 low point and more than $120 in just the past few weeks, gold has scored a series of successive all-time highs.  Now, however, there is certainly some risk of a sharp short-term correction, particularly if the political-economic news on either side of the Atlantic looks less threatening to financial market stability.

A political compromise to raise the U.S. Treasury debt ceiling and agreement to narrow the Federal deficit in future years that avoids any downgrading of Treasury debt by the rating agencies would remove or reduce an important source of anxiety that has contributed to gold's recent strength.  News of positive movement toward or actual completion of an agreement could trigger a swift - but temporary - gold-price retreat.

Speculative long positions held by institutional traders on world derivative markets have increased sharply in recent days.  Should the market lose upward momentum, speculative pressures could quickly turn negative.  Moreover, if the short-term news turn bearish for gold, liquidation of these long positions and/or institution of new speculative short positions could leave the market especially vulnerable to a swift correction .

Adding to my short-term caution has been a price-related relaxation of physical demand and the appearance of increased quantities of gold scrap returning to the market, especially from India and other price-sensitive national markets in recent weeks as prices rose above $1550 and approached $1600 an ounce.

I expect Indian and Chinese scrap reflows will diminish significantly over time, even at high price levels.   In the meanwhile, should gold approach or fall below the $1550 level, scrap supplies will quickly abate and price-sensitive demand, smelling a bargain, will re-appear.

HOT SUMMER, HOTTER AUTUMN

Contrary to the view expressed by most serious gold analysts, we said in past reports that gold would not pause for its typical summer vacation - and it hasn't!  Nor would we see this summer a seasonal relaxation in price volatility.  Indeed, it has been a very hot summer as gold moved up smartly to achieve new all-time highs with plenty of fireworks and price volatility both up and down.

However, come September, positive seasonal factors will kick in - and, other things being equal, give gold still more firepower. There are three distinct sources of seasonal demand, all of which will likely contribute to demand and higher prices as we move into the later few months of 2011:  First, jewelry manufacturers step up fabrication demand ahead of Christmas gift-giving late in the year; second, Indian dealers begin stocking up ahead of the autumn festivals and wedding season, and in expectation of good harvests and healthy household incomes in the gold-friendly agrarian sector; and, third, later in the year and in early 2012, we should expect a sharp rise in gold investment and jewelry demand associated with the approaching Chinese lunar new year.

For sure, irrespective of the season, price-sensitive Asian demand - principally from China and India - for physical metal will continue to underpin these markets and limit downside risks.

So too will bargain hunting by a number of central banks eager to raise their official gold holdings without disrupting the world gold market by increasing upward price volatility.

CENTRAL BANKS REDISCOVER GOLD

Official statistics published monthly by the IMF show that central banks, as a group, have been busy buying gold.  Russia, India, China, Saudi Arabia, Mexico, and Brazil have been among the big buyers in recent years and a number of other countries have added smaller amounts of gold to their official reserves.  One big surprise was Mexico's purchase of some 100 tons earlier this year as a hedge against the possible decline in the value of their U.S. dollar reserve holdings.

Moreover, a recent survey of 80 central bank reserve managers predicted that the most significant change in their official reserve holdings in the next 10 years will be their intentional build up in gold reserves.  They also predicted that gold will be their best performing asset class over the next year and sovereign debt defaults will be their principal risk.

OVEREIGN DEBT CRISIS PROMPTS SAFE-HAVEN DEMANDS

European Central Bank president Jean-Claude Trichet a few weeks ago raised the alarm level on Europe's debt crisis to "red," warning that the crisis is nowhere close to being resolved . . . and he also warned of the "potential contagion effects across the [European] Union and beyond."

Meanwhile, Europe's sovereign debt problems are worsening and the likelihood of sovereign default by one or another of the more vulnerable periphery economies is increasing, despite the past week's patchwork aid package that avoided (or more likely postponed) a sovereign default by Greece.

Despite all the talk among finance ministers and the European central bank, it looks like the future fate of "periphery' country debt is increasingly in the hands of the credit rating agencies who view any delay in full repayment as partial default.

Several factors suggest that the European debt crisis will continue to worsen:

Longer term, the more restrictive fiscal policies the periphery nations (Portugal, Ireland, Italy, Greece, and Spain - the so-called PIIGS) have been asked to accept will push their economies deeper into recession - and increase, rather than decrease, government deficits and borrowing needs for years to come.

More immediately, the downgrading of sovereign debt by the rating agencies raises interest rates and borrowing costs - and pushes these countries closer to the brink (a lesson that the United States needs to learn before it also finds itself with higher Treasury borrowing costs should we suffer a cut in our own debt ratings on U.S. Treasury securities).

As credit ratings decline for the peripheral countries, the rising cost of refinancing maturing debt make it all that much more difficult to keep their heads above water.  Reflecting the recent deterioration in credit ratings, Greek two-year bond yields last week were over 35%, Spanish 10-year bonds hit a record 6.3%, and Italian 10-year bonds were  also yielding around 6%.  Higher borrowing costs will increase government deficits and make repayment of past debt all the more difficult.

An important aspect of the crisis is that default on European sovereign debt, debt that is held by many European banks, will require the banks to write-down these questionable assets, leaving them with insufficient capital and effectively bankrupt.

The broader effect of bank failures on the European economy, capital markets, and banking system could be far more devastating than the Bear Sterns and Lehman Brothers debacle in the United States - and would likely result in the European Central Bank along with the U.S. Federal Reserve flooding financial markets with newly created money, depreciating paper currencies, inflating prices, and boosting gold.

I continue to believe that ultimately the euro, Europe's single currency, will be replaced by a multi-currency system - with the core countries possibly retaining the euro while the periphery nations will revert each to their own monetary unit or a deeply devalued renamed euro of their own.

With no solution in sight, Europeans will continue to abandon the euro for "safe havens" including gold and, ironically, the U.S. dollar.  At the same time, the problems of the euro will discourage its acceptance as a reserve currency by some central banks - and make gold an even more attractive alternative.

MEANWHILE, BACK AT THE FED

The U.S. economy is still mired in recession, or worse.  Nearly everyone knows it, even if the official statistics show some positive growth in real GDP.  Unemployment remains stuck at over 9 percent.  The huge inventory of foreclosed homes held by banks continues to weigh heavily on home prices.  Various economic indicators released in the past few days and weeks are pointing to the second dip in what may be called a double-dip recession.

So far, most Washington politicos and Wall Street bankers are in denial, refusing to see the worsening signs of renewed recession.  Instead, they are arguing for restrictive economic policies that, if enacted, would exacerbate the developing downturn . . . and which future history books will liken to the policy mistakes of the 1930.

The Fed also fails to see, at least publically, the writing on the wall.  Having ended its program of quantitative easing at the end of June as scheduled, it will - in my view - soon be forced by rising unemployment and sluggish business activity to resume monetary stimulus in one form or another.  Contrary to popular belief, the Fed can stimulate the economy and liquefy the financial system through open-market purchases of securities and even real assets, not just Treasury securities but stocks, corporate bonds, commercial paper, mortgages, credit-card debt, student loans and even real estate.

The resumption of quantitative easing (QE3) or some other program of monetary stimulus will be reflected in a swift and significant jump in gold prices.

As I have said in past reports and speeches, the only viable and politically acceptable means for America to dig itself out of its unbearable burden of excess debt - federal, state and local, housing, and other private-sector debt - is to pursue a pragmatic policy of higher inflation that will deflate the ratio of outstanding debt to nominal gross domestic product (GDP) to historically acceptable and manageable levels.  This is what we did in the 1970s, a decade of stagflation, and we're already doing it again.  Indeed, under Chairman Bernanke's lead, the Fed is quietly pursuing this policy of targeting somewhat higher U.S. price inflation.

Pursuit of a mildly inflationary monetary policy will not however excuse the Congress and Administration from developing a responsible believable program of long-term spending restraint and deficit reduction.  However, now is not yet the time to impose these restrictions on an ailing economy - though articulation of a realistic bi-partisan plan for long-run deficit and debt reduction would help calm world financial and currency markets.

Whatever happens in the U.S. and European economies, it is hard to imagine a realistic scenario that won't push gold prices significantly higher in the months and years ahead.

OTHER PRO-GOLD TRENDS CONTINUE

Meanwhile, other important pro-gold trends continue unabated.  These bullish trends include:

·         The growth in Chinese, Indian, and other Asian gold demand accompanying their expanding economies, growing wealth, rising inflation, and historic affinity to gold in jewelry and as a saving and investment medium.

·         The expansion of the gold investment infrastructure around the world - such as the development of gold exchange-traded funds and other forms of physical gold . . . or the implementation of gold distribution systems through banks and other retail outlets in China, India, and elsewhere).

·         The recognition of gold as a worthy asset class for inclusion in investment programs and portfolios of individuals; pensions, endowments and other institutions; sovereign wealth funds; and central banks.

·         The relative stagnation of new gold-mine production (certainly in comparison to the growth in gold demand) and the rising costs of discovery, development, and operation of new mines.

http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=132229&sn=Detail