One of the subscriptions that I recieve brought this to my attention today and I thought I'd put it up here to assist those of you who, for some reason, still fail to understand the dynamics behind what will be remembered as the 'Great Gold Bull'.
Bear in mind here, I'm not preaching, nor as one contributor put it, am I attempting to 'self proclaim' myself as a gold expert. Far from it. I just think, as many here do, that the path ahead has been clearly laid for all to see, if only they will allow themselves to see thought the noise and look ahead with clarity. If I am to be honest, I would like to think that I am trying to assist some to profit from the extraordinary opportunity that lies ahead and not look back in sorrow at it as an opportunity missed.
To those who are unaware (and to those that are aware but could do with a reminder), the US of A's reverred head of the Fed, Mr Ben Bernanke has actually detailed the path which he will take, given the circumstances that he and the US now find themselves in. The entire speech can be found here:
It was titled 'Deflation - Making Sure 'IT' Doesn't Happen Here'. You can view the entire speech through the link above, but the three most important paragraph's are as follows:
'As I have mentioned, some observers have concluded that when the central bank's policy rate falls to zero--its practical minimum--monetary policy loses its ability to further stimulate aggregate demand and the economy. At a broad conceptual level, and in my view in practice as well, this conclusion is clearly mistaken. Indeed, under a fiat (that is, paper) money system, a government (in practice, the central bank in cooperation with other agencies) should always be able to generate increased nominal spending and inflation, even when the short-term nominal interest rate is at zero.
The conclusion that deflation is always reversible under a fiat money system follows from basic economic reasoning. A little parable may prove useful: Today an ounce of gold sells for $300, more or less. Now suppose that a modern alchemist solves his subject's oldest problem by finding a way to produce unlimited amounts of new gold at essentially no cost. Moreover, his invention is widely publicized and scientifically verified, and he announces his intention to begin massive production of gold within days. What would happen to the price of gold? Presumably, the potentially unlimited supply of cheap gold would cause the market price of gold to plummet. Indeed, if the market for gold is to any degree efficient, the price of gold would collapse immediately after the announcement of the invention, before the alchemist had produced and marketed a single ounce of yellow metal.
What has this got to do with monetary policy? 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.'
The two most important things about the speech, in my opinion are:
1. The subject. Deflation - Making Sure IT DOESN'T HAPPEN HERE. This speaks VOLUMES and for anyone who still believes that we are going to end up with an extended period of deflation needs their head examined. They WILL NOT LET IT HAPPEN THERE!!!! Thats the whole point!
2. The speech lays down how deflation will be avoided at ALL costs. It is therefore VERY safe to assume that no stone will be left unturned. If that means, as is mentiond in the speech, that revaluing gold (through debasing the currency) is required then that it what shall happen. If that means printing money, then that shall be what happens. If that simply means threatening to print masses of currency, thats what will happen. The USD will decline. Make no bones about it. It is written, so to speak.
Any scenario that is even close to this playbook will result in the price of gold finding an equilibrium above $2500 and its my personal opinion that a price of $5000 will be reached within the next 5-7 years and probably within 5.
We have all been presented with an extraordinary investment opportunity, given the fundamentals for gold and the severe beating of equities in general, where the baby really has been thrown out with the bathwater. Don't take my word for it, go and read and research and draw your own conclusions, but I am sure you will come to the same ones.
We are still in the second stage of the gold bull, often described as 'The Wall of Worry' stage, where every rise is treated with suspicion due to previous scars from falls from similar positions in the past. When we move into the rampant speculation phase which does seem to be approaching, greed will replace fear and will result in a move that will be remembered for decades. We still refer to the 70's gold run as the great gold bull. That will surely be replaced by this one. Many who feel that this will not occur like to remind those of us that do, that gold has proven a terrible investment over the last 30 years. To these people, I say indeed. Because the environment was not ripe for gold to flourish in. That however is not the case anymore. Where we find ourselves now and moving forward in the next few years is THE SCENARIO in which gold thrives.
Don't miss out on profiting from such an amazing opportunity through indecisiveness or a lack of the courage of your convictions.
Richard Russell often mentions the catchphrase of the 70's.
'There's no fever like gold fever'.
We are not far away from that rolling off the tongues of many once again.
Cheers Ad
Disclosure - I hold heaps of gold, oil and commodity producing stocks. If you think I'm talking my own book, then I'm afraid you can't see this for what it is.
