Gold Primed to be ‘Mania Asset’

Photo: EDDIE MULHOLLAND

• Gold briefly went above US$1000/ounce yesterday. More investors are piling in. We will see gold test the previous high of US$1035/ounce very soon.
   
• During times of monetary distress, people run to gold. Gold is real money throughout history. Fiat currencies have come and gone. Empires have fallen but gold has stood the test of time as real money. Paper currencies have collapsed, remember the Wiemar republic and Japanese Yen in WW2 ? The USD will collapse too.
   
• Will Gold collapse when USD collapse? Obviously not. Just because gold is traded in USD in the Comex does not mean that it will become worthless when USD collapses. On the contrary its value will skyrocket as people realize the USD is just a piece of paper. Bernanke and his cahoots have been creating trillions of USD out of thin air.
   
• The likely scenario when there is a monetary meltdown is : Gold will be coveted. The demand for gold will be mania like. Financial Times reports in Gold primed to be ‘mania asset’:
    
  Gold is exhibiting all the classic signs of being in a structural bull market. On fears of inflation in early 2008, it rallied. Then, on fears of deflation in late 2008, it rallied again. So does gold perform better during inflation or deflation?
   
  In our view, that question is the wrong starting point. On the contrary, the rationale for owning gold, as it once again approaches the $1,000-an-ounce level, is the prospect of mounting monetary disorder.
   
  The US Federal Reserve, having flooded the market with liquidity by more than doubling its balance sheet in less than six months, may be unable or unwilling to withdraw it in time for fear of precipitating a secondary relapse in economic activity. Other central bankers will also face intense pressures to “support” their domestic economy by weakening the currency, leading to competitive currency devaluations.
   
  The race to the bottom in fiat currencies has begun and hard assets, particularly gold and silver, should be the primary beneficiaries.
   
  Gold is a prime candidate to become a “mania asset” once its demand becomes chiefly financially driven as opposed to jewellery and/or industrial demand driven where its upside could be capped by “sticker shock.”
   
  In fact, gold is currently one of the few remaining major asset classes where a case could be made for it to rise in a parabolic fashion. Once the psychologically significant $1,000-an-ounce is breached convincingly, the speed of the move beyond that level could accelerate sharply. One precondition for a mania is there must be uncertainty about how the asset is properly valued which allows “new era” thinking to take hold. This is very true for gold.
    
  Price explosion might not be imminent, however. Gold is experiencing unprecedented buying by exchange-traded funds, offset by substantially reduced jewellery demand. The fall in the Indian rupee has meant Indian gold prices have reached record levels. This is causing a slowdown in jewellery purchases (even though rupee expenditure levels are holding up, the tonnage of gold imports is suffering).
   
  The long-term story for gold, however, is as a remonetisation play as investors lose faith in fiat currencies. Keep an eye on gold lease rates; a spike would be a good lead indicator that gold is about to punch higher as this would reflect a shortage of lendable bullion. Rising lease rates will cause gold to go into backwardation as holders of gold may not want to sell their gold forward under any circumstances a trend currently evidenced by the high physical premium being paid for gold coins. 
    …….
  Speaking to central bankers, this is the first time I can recall them actually favouring a high gold price. Normally they see high gold prices as a lack of trust in the financial system (not to mention their ability as central bankers). Alan Greenspan, the former Fed chairman, for example, used to target a gold price of around $400 to $500 an ounce.
   
  Recently, the central bankers have become more enamoured of higher gold prices as it would suggest that their attempts to stave off deflation were starting to work.
   
  Central bankers in favour of higher gold prices? Things really have changed.
   
• When fiat currencies collapse, trade will be done via bartering or gold as currency. Can foods will be valuable: bake beans, Spam, sardines etc ….dry foods like: Quaker Oats, instant noodle…etc . All these can be used for bartering. But remember the perfect store of wealth is still gold! Let me tell you that when people will not accept USD in the future, they will still accept gold as payment !
   
• See also :
   
  Gold About to SkyRocket ! China Worries about Treasuries and Diversify into Gold !
  European Banks may need US$ 23 Trillion Bailout !
  Gold Price Set to Soar !
  What’s not to Like about Gold ?
  Dollar Devaluation, Debt Default & Gold
  Massive US Dollar Devaluation Against Gold During 2009
  Gold Rush Worldwide!
  Obama, Roosevelt, Gold Confiscation and Dollar Devaluation
  Economic Depression and Gold
  Celente – Code Red ! Economy in Collapse !
  GEAB : Systemic Economic Crisis: The Sequence of Global Insolvency Begins
  Global Financial & Economic Meltdown
  GEAB forecasts Next Financial Tsunami in March 2009
  Global Monetary Meltdown in 2009 ?
  America’s Debt – Ticking Nuclear Bomb!
  American & British Banks are Bankrupt!
  Economic Collapse of 2009 – Greater than Great Depression of 1929
  America is at the Edge of Niagara Falls
  Gerald Celente – Trends 2009
  Can Countries Go Bankrupt ?

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