GOLD!

As many of you know, we have been extremely bullish on Gold for a few years now. Why? Where does it go from here? And doesn't $1,400/oz sounds really expensive?

The economic collapse has spurred unprecedented action by governments across the globe. To aid domestic recovery, governments have injected money into their economies and artificially devalued their currencies. The former action aids domestic consumption while the latter boosts export demand. The trick is that the value of a currency is relative. The Yen is strong or weak only in comparison to something else. So what happens if the Euro is artificially devalued to the same extent? The Euro/Yen ratio would remain the same. That is why gold (and other commodities) have sustained such long term growth. Commodities don't change in value, they reflect the value of the currency in which they are priced. And with governments continuing to print money, gold has no reason to lose "value."

Take a look at these stats from Agora Financial:

"Let’s take a look at some of the great gold bull markets of the last hundred years:

From 1920 to 1923, the price of gold in German marks rose from 160/oz. to 48 trillion/oz.
From 1945 to 1950, the price of gold in Japanese yen rose from 140/oz. to 12,600/oz.
From 1948 to 1967, the price of gold in Brazilian cruzeiros went from 648/oz. to 94,500/oz.
From 1970 to 1980, the price of gold in US dollars went from 35/oz. to 850/oz.
From 1982 to 1990, the price of gold in Mexican pesos went from 8,000/oz. to 1,025,000/oz.
From 1989 to 2000, the price of gold in Russian rubles went from 1,600/oz. to 8,120,000/oz."

Each of these periods is a time when that currency collapsed.

So how do you value gold and where does it go from here?

Another quote from the Agora writer:

"The “price of gold” may reach five thousand, ten thousand, a hundred thousand, a million, or a billion dollars per ounce. The gold bubble-callers will be frothing at the mouth, until they finally have the realization that there was never a bubble in gold, but only a crash in paper money."

By no means is anyone predicting a billion dollars an ounce or even ten thousand, but the point is that gold is gold. Its price reflects the value of the underlying currency. So as long as the US keeps running deficits and the Fed keeps announcing "quantitative easing" (printing), why won't gold continue to rise in terms of US dollars? The same goes for other currencies (400 to 1000 Euros/oz in the last 5 years).

Going forward, government policy will be the determinant. With the US having over 111 Trillion dollars of unfunded liabilities (www.usdebtclock.org) I don't see how we can avoid printing currency... a lot of it. And what if there is a full blown collapse one day? Can you afford not to own gold? Right now, we don't think so.

-Sean