Gold Will Shine Once Again in 2009!
I think this one may be a shocker to many…that gold is going to be much higher at the end of 2009 than it is right now. I think it will take out its highs just above $1,000 an ounce and will head for at least $1,250 an ounce. (Gold is presently trading around $853 an ounce.)
When I was a stock broker, I hated gold. To me it was the dumbest investment on the planet. Of course I worked as a broker when gold was in a multi-year bear market.
But the more that volatile booms and busts have caused the need for more government intervention, the more of a believer I’ve become in gold.
Let’s look at several of the dynamics that have helped to form my view for gold in 2009.
South Africa is home to some of the biggest gold mines in the world. In 2008, their gold output shrank as exploding input costs caused them to close some of their most expensive mines. (Produce less of the metal and the speed of the supply shrinks which helps to support the price.)
This has been one dynamic that has helped to support prices in 2008 and that has kept it in an 8 year bull market. Even in 2005 and 2008 when the dollar rallied, gold still held its ground. This shows a lot of strength for the metal since the dollar and gold largely trade somewhat opposite of each other (being that gold is denominated in dollars and when the dollar is rising, it tends to calm the fears for the currency which typically dulls the demand for the precious metal).
In fact, had it not been for tons of hedge fund failures and liquidations, I think gold would actually be much higher than it is right now.
Helicopter Ben & Obama will do their part to help gold out!
With the credit crisis in full swing, the Fed has responded by turning on the printing presses at full speed. This enormous increase in the money supply (which is temporarily clogged up in the banks) will eventually be unleashed on the economy. Once this happens, you will quickly see deflation erased and we may actually move into a period of hyper-inflation.
Why would I go so far as to think that? Heck, the Obama administration may print as much as a few trillion dollars to help out the banks according to former central banker Volcker.
We’ve also got another stimulus package coming within weeks according to the Obama administration.
Another reason why I feel that a huge bout of inflation will return is because of interest rates. If you’ll remember, Congress got pretty harsh with Alan Greenspan for taking rates down to 1%. They even went so far as to accuse him of causing the recent bubbles in the economy which he denies.
Well, if the “1% cheap money” inflated things into the stratosphere, what do you think will happen with Ben Bernanke’s interest rate range of 0% to 0.25%? Could you say it would have any less of an effect? No, it will have an even greater “bubble effect” in time as the cheap money actually is released out into the economy.
Tomorrow, I’ll continue with “Part 2” of this “gold story”… So stay tuned!