U.S. Debt Woes, Though In Background, Still Lurking

That's why Michael Power, Investec investment strategist, believes gold will continue going up. The more immediate if underacknowledged influence is macroeconomic data from Asian countries. With respect to mainland China, the current tightening may reverse if it takes too big a bite out of economic growth.

"We are beginning to see them really become very big players and the more people focus on what's happening in the west to the detriment of not really focusing on what's happening in the east, the less they're likely to get the overall picture right."

That said, there is reason to be concerned not just about what is going on in Europe but, also the developing situation in the US.

According to Power, the biggest question in the global economy at the moment, albeit not the most immediate one is what is likely to happen to U.S. debt.

He says, "Someone this morning likened it to a Charlie Chaplinesque cartoon where you see a guy tied to a railway track and the engine is coming from afar and you can hear it coming and they're lying on the track looking at you and saying help me get out of this. I don't think that the Americans have quite realised yet that the debt train is coming and its big and at some point they're going to need something to do about it."

Needless to say, he's skeptical about the chances of any budget discipline coming down the pipe. He's of the opinion that U.S. legislators are still in denial.

Gold Standard By 2014?

In a wide-ranging interview with The Gold Report, Ian Gordon - a user of long-wave analysis as pioneered by Nikolai Kondratiev - predicts that the world will go back to the gold standard by 2014. He sees 2011 as a danger year, like 1931 proved to be. Only this time, instead of a major bank failure resulting in the world going off the gold standard, a major crisis - likely with the Euro - will induce the world to go back on it.

In 2011, we see parallels to 1931 because we're 80 years beyond that time. We believe 20-year cycles are important anniversaries, and this is just four twenties. In 1931, the whole world monetary system effectively collapsed. We've been long anticipating a collapse in the current world monetary system based on the collapse of 1931. However, we see that the current collapse is going to have far more significant and devastating implications than the collapse between 1931 and 1933 simply because it's the collapse of the paper-money system now.

Essentially, paper money is credit money. When paper money fails, credit fails. Effectively, the economy will fail on credit....

I'm pretty sure that we will go back to a gold standard system. Paper-money systems have never survived throughout history. Generally, they've been set around a one-country experiment. And when those have failed, as in France after John Law's paper-money scheme failed in 1720 or the Assignat failed in about 1798, there was tremendous upheaval. And, following these failures, the country resumed gold as the backing for its currency.

So, I think we have to go back to something like that because, in essence, gold enforces discipline on governments. We've seen a complete lack of discipline in the paper-money system that's been ongoing since the 1931 collapse of the world monetary system. Paper-money printing has just gotten out of control; and now, parallel to the paper-money printing is the debt. They go hand in hand.

He says he's been recommending full exposure in gold since 2001, and he recommends full exposure now.

Jim Rogers Considering Selling Greenback On This Rally, Says Wait For Dip In Gold

Currently, Jim Rogers is of the opinion that commodities are in a "big bubble" that still has strong legs. He's bearish on the greenback, and says he plans to sell his holdings into the current rally. He's not convinced that gold's stopped dropping, although he remains a long-term bull on the metal (and on commodities.)

He also likes commodities-based currencies which have stable central banking policies such as the Aussie dollar and Canadian dollar.

The 68-year-old founder of the Rogers Holdings said he expects U.S. bonds to enter a long-term bear market, cautioning against any dollar holdings....

On the gold price, Rogers sees a consolidation, and maybe a decline, from current price levels. On pullbacks in the precious metal, he said he will be a buyer.

“I would expect gold will need a little rest. If prices go down, I will buy more gold,” he said. “I expect gold to go much, much higher in a bull market over the course of the next 10 years. Everything is going much higher because currencies are being debased everywhere.”

Despite his bubble talk, he still continues to hold commodities.

U.S. Government Spendaholicism Means $5,000 Gold Eventually: Forecast

In the "Gold and Silver Blog," a forecast is made for higher inflation and $5,000 gold. Ben Bernanke's words about moderating inflation are dismissed out of hand, with his track record on the housing bubble being used to justify doing so. It's also contrary to normal Fed operation:

The Fed's policy of pushing easy credit for the past 30 years to fuel economic growth has left Americans swimming in debt. The housing collapse and declining incomes have resulted in millions of mortgage defaults and underwater homeowners. The Government's attempt to bailout a collapsing economy and over leveraged banks and consumers has resulted in trillions of dollars in new debt and a $1.5 trillion deficit.

Government debt has exploded to the point where the solvency of the U.S. Government is now being questioned. Large tax increases to erase the deficit would spin the U.S. into a deep recession. The President and Congress lack the political will to cut spending. The U.S. has spent and borrowed itself to the eve of financial ruin and must "inflate or die" at this point.

The Fed, with the experience of two money printing campaigns already under its belt, will have no problems extending this practice....

That burst of money-printing will lead to an upward move in the precious metals that will dwarf the ones up 'til now.


The bullish call is plausible, but the only way gold could make a move to $5,000 would be if an all-out mania developed. It's possible, of course, but it wouldn't be sustained.

J.P. Morgan Says Oil, Gold Will Help Commodities Rebound

Although base metals and silver have hit the skids, gold and oil have held up fairly well. Those two not sinking that much is the reason behind J.P. Morgan forecasting a rebound of commodities in general.

"In the short-term, the macro landscape seems to have taken a turn in recent weeks," Ray Eyles, chief executive officer of the bank's commodities business in Asia, said in an interview. "Ultimately the long-term fundamental supply and demand of commodities is still pointing to higher prices."

By "commodities in general," the Asian commodity department means the commodity index. They also believe there will be a bigger market for commodity buying and hedging in Asia, and are expanding their offices in the region to meet the anticipated increase in demand.

The bank's putting its effort behind its mouth in another way. Morgan announced it will be moving into gold trading in Asia. As for commodity performance, Eyles sais he's most optimistic about energy.

Eric Roseman Sees Gold Going Higher On Dissolved Ignorance

Echoing a familiar lament, Eric Rosement says gold is something you either "get" or you don't. You either see the connection between gold rising and fiat-money debasment, or your remain ignorant of that relationship. Those in the latter category aren't interested in gold even when its track record makes the relationship clear.

He makes this forecast, though: as gold keeps going up, the formerly ignorant will jump in and push the price even higher.

There’s no questioning whether gold is cheap at $1,500 an ounce; it’s not. But I suspect that by the time this great bull market is over everyone – including the ones that “don’t get it” — will be forced into the market and will chase gold north of $2,000 or $3,000 an ounce. That period will coincide with the next currency crisis or sovereign debt crisis – a very big secular event that will push the non-believers into gold.

The global exchange rate system is a very sick and distorted mechanism. Gold continues to act as an alternative currency outside the confines of the bulging credit and debt universe and that’s a trend that won’t end any time soon.

The trouble with that procession is the fact that the skeptics tend to get sucked in at or near the top. Once gold's long-term bull market turns into a long-term bear market, the gold skeptics will have further reason to be averse to gold because they'll get burned.

And so it goes...

Deutsche Bank Offer Daring Call: $2,000 Gold This Year

Normally, mainstream calls for gold to go up - even if the raw number seems daringly high - amount to an annual gain of less than 10%. That's well below gold's real annual gain over the last ten years. Of course, making semi-safe predictions increase the odds of the prediction panning out.

Given this practice, Deutsche Bank's latest gold forecast stands out as particularly daring.

Gold, which reached a record on May 2, may surge a further 30 percent by January as investors seek to protect themselves from “economic uncertainty,” according to Deutsche Bank AG.

“I’m bullish on gold despite its current levels,” Hal Lehr, Deutsche Bank’s managing director for cross-commodity trading, said in an interview in Buenos Aires. “It could reach $2,000 an ounce in the next eight months.”

Who Lehr is likely influenced his lack of typical analyst caution. Lehr's not part of the analyst department; the unit he head up has more to do with the trading department. Still, his words do have Deutsche Bank's stamp on them.

Peter Schiff Says The Herd Is Turning...Towards Gold

The herd in question is composed of major institutional investors. For most of gold's 10-year bull market, they ignored the metal. But recently, daring institutional buyers like the University of Texas' endowment funds have been putting some funds into gold as a portfolio hedge. The board member who convinced them to do so was Kyle Bass, the Hayman Capital hedge fund manager.

The purchase is certainly causing a few heads to turn.

Now that a major endowment has taken this step, other fund managers are going to be emboldened to follow through on their gut instincts. These are smart guys, after all; they are aware that although their funds may be posting nominal gains, they are losing much more in purchasing power. I’m sure many have privately bought precious metals, but now they have cover to do so professionally....

As endowment after endowment decides to sell billions of Bernanke’s dollars and diversify into gold, what might this do to the gold price? 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.

What makes for those huge ramifications is the fact that there's a lot of institutional money relative to the supply of gold. If all private foundations followed the University of Texas' lead and put 5% of their portfolios in gold, they'd have to buy about 400 tonnes of the metal to make good.

Schiff concludes by saying that the smart money is waking up and about to veer towards gold.


I can't really fault him on his logic, as what he says gibes with what I know about institutuonal investors. They do often act like a herd when one of their own takes a daring risk that pays off hugely, although there's often a lag time. Should they pile into gold, the metal might well go parabolic...making them all look very smart.

For a time, anyway.

Jim Rogers Says Corrections Not Over

In an interview with the Economic Times, Jim Rogers said he's not moving in to take advantage of lower prices to buy some more commodities. Although he specifically disclaimed any ability to time the market, he did make it clear that he's too uncertain to declare a bottom right now. Instead, he's sitting back and watching to see how the corrections play out.

ET Now: ...Many base metals are at multi-month lows. Do you see this to be the starting point of more downward pressure? Where do you see the next 3 months for these commodities and how volatile they can be?

Jim Rogers: Again, I have absolutely no idea. 5% correction in gold is meaningless. These things correct 10-15-20-30% every year. Nothing unusual about that. That is the way the markets work. I do not see anything unusual. I expect there would be more correction during the course of the bull market. I hope that the bull market goes up, consolidates, goes up, consolidates, goes up and consolidates for years to come. That is my expectation for all commodities.

In other words, "watch it."


I can say that gold tends to be seasonally weak until mid- or late summer. Although there has been a fair relief rally in gold today, it's not very likely that the metal will make $1,600 before the fall. [To be scrupulous, I should add "if at all."]

Rob McEwen Claims People's Bank Of China Wants To Own More Gold Than U.S. Government

Although mainland China gold reserves are only about an eighth of the U.S. government's, Rob MvEwan believes that the mainland Chinese government is aiming at besting the U.S. in that department. Other developing-country central banks will keep buying gold too.

Rob McEwen, founder and former head of Goldcorp, now the world's fifth largest Gold Mining company, believes central bank purchases could help push the price of gold to $2000 an ounce by the end of the year.

"China is out to have more gold than America, and Russia is aspiring to the same," said McEwen, who is now chairman and CEO of junior miner US Gold. "When you have debt, you don't have a lot of flexibility. China wants to show its currency has more backing than the US."

They doing so would be quite the prestige coup, but PRC monetary officials are mindful of the effect they doing so would have on the price. If that's their goal, they'd be prudent to wait for the end of a vicious bear market like 1980-82's. Right now, the government of mainland China seems more interested in encouraging their citizens to buy gold.

Reuters Straw Poll Garners Average Price Forecast For 2015: $1,700

Reuters' straw poll of twelve analysts got an average - presumably, the mean - of $1,700 for gold in 2015.

A poll of 12 analysts by Reuters found the average price forecast for gold in 2015 was $1,700, a 12.7pc rise on the all-time high of $1,508 reached today.

The forecasts ranged from $1,000 an ounce to $2,750, but even if the price reached the top end of that, the pace of gains would be slower than in recent years.

In other words, they're conservative and/or cautious. Assuming that "2015" means April 21, 2015, the 12.7% rise is over four years: it translates into a 3.03% annual gain. Even the most daring, as the article indicates, forecasts an annual growth rate of 16.4%. Over the last ten years, since April 20, 2001 using the PM fix, the metal has risen 18.99% annually.

So, even the most optimistic forecast has gold slowing down from its ten-year growth rate. The most likely reason for that relative conservatism is expectations for a mini-bear market in the interim - or for a full one from the more pessimistic analysts.

What's lacking in all of them is the enthusiasm that typically accompanies a mania.

Morningstar Still With The Gold Skeptics

Morningstar, a top-notch equity research firm that's been trying to apply its ususal tools to gold, is back with an analysis backing up their firm contention that gold will decline in the long run. The four reasons given provide a useful tip that shows how Monringstar's analysts think:

So what drove [the] massive increase in gold prices during the last decade? We believe four major factors have been largely responsible for the recent surge in gold prices:

1) The inception and proliferation of gold-backed, exchange-traded funds (ETFs).

2) Growing retail demand from emerging markets, particularly from China and India.

3) Central banks switching from being net sellers to net buyers of gold.

4) Miners scrambling to eliminate their gold hedge books.

While we think that some of these factors could continue to provide a tailwind for gold prices, we believe many of the factors cited above are unsustainable over the long run, thereby lending support to our lower long-run gold price forecast (compared to high current prices).

Granted that these factors have been partly responsible for gold's ten-year bull market, especially #2, but note what that list of four has left out. There's nothing about demand stimulated by rising inflation [remember 2007?] or fiscal crises. There's nothing about using gold as a long-term hedge against fiscal irresponsibility. There isn't even the mainstream-friendly factor of gold's newfound popularity as portfolio insurance. They did hit the spot with respect to #2, but the others do little more than scratch the surface. As for #4, the timing of at least one of those de-hedgers (Barrick) was embarrasingly maladroit. They did so right at the top of the late '09 run, after which there were a lot of skeptics crowing about the end of the purported gold bubble. Gold did face a correction that eventually drove it down from Dec. 2nd's $1,225 to $1,045 at the Feb 4th '10 bottom, but we now know that the exploded-bubble thesis has been definitively disproved.

Yes, what Morningstar considers to be primal tailwinds does reveal their circle of competence. With respect to gold, they seem to be wandering out of it. Even the scholar-validated driver, of low or negative real interest rates pushing gold up, gets only a passing mention in the midst of explaining why gold oughta go down.

Midas Letter Sticks Its Neck Out; Says $5000 Gold Credible

The Midas Letter starts off by reminding us that the of $1,000 gold, seemingly outlandish a few (actually, several) years ago, have proven to be conservative in retrospect. The question, of course, is how high gold can contunue to go. The Letter says $5,000.

And what, pray tell, is coming down the pike to support a gold price of $5,000?

First and foremost, the United States dollar.

The whole global financial system is trapped in a situation whereby we have no choice but to permit the United States to continue counterfeiting money. There is no single political force or voice or even prospect with the knowledge and the power to put a stop to the insanity into which we continue to spiral on a daily basis. That means, despite the unanimous chorus from the financial media mainstream, which anesthetizes the human race in an effort to thwart violent protest by design, the fabrication of electronic dollars will continue apace. For years.

The second reason is related to the first: increasingly, money managers are getting out of U.S. debt. This example should persuade sovereign wealth funds and other pools of foreign capital to get out of the U.S. dollar itself, which would push up gold. The third reason is public pressure to remonetize gold.

The decision by the people of Utah to do just that was big news recently, even though technically and legally, it always was legal tender in that state. It is this final legitimizing step by regional governments that will open the eyes of the otherwise hypnotized American public. For now, the move is painted as fringe by the idiotic mainstream, who are unwitting pawns for the financial services industry – U.S. Federal Reserve – U.S. Treasury trio of economic under-miners.

There's no date given for the forecast, but the context makes clear that they mean the blow-off top for the metal. $5,000 would mean more than a triple from current levels.

GFMS Says Gold Will Reach $1,600 This Year

The driver will be stagflation fears. The gold bull market isn't threatened right now because investors and other buyers are becoming acclimatized to higher prices.

"There is a higher starting point for each successive investor-led rally in the price. Thus, assuming investment demand will at some point take off again this year, there remains good scope for new highs in the price to be recorded," the consultancy said....

"Indeed, we would expect the next waves of investor buying to take gold to above $1,500/oz, and then to the $1,600/oz mark before the end of 2011," GFMS said.

Also adding to gold demand is further fiscal difficulties and more eruptions of fiscal crises.


GFMS' Gold Survey 2011 contains some worrisome news for senior producers but not for holders of physical gold. Gold production increased by 4%, following gold's rise, but producers are being dogged by cost inflation and lower grades.

Costs increased sharply in 2010. Cash costs rose by $79/ounce to $557 and GFMS notes that cost-inflation is with us once more, "returning to the 15-25% levels that prevailed from 2003-2008". Total costs also increased by 17%, while all-in costs (derived from a proprietary model and taking account of all cash and non-cash costs, sustaining capital expenditure, indirect costs and overheads) rose by 20% to $857/ounce. Average total cash margins, meanwhile, increased from $495/ounce to $668/ounce. Last year's increase in average costs was the ninth successive annual rise, both in money-of-the-day and in constant money terms.

Although input cost inflation components all increased, the more significant increases came from unfavourable exchange rate movements, lower grades and higher strip ratios....

GFMS records a 30% fall in average grades since 1999, during which time gold prices have quintupled. This fall is largely due to a price-driven reduction inI cut-off grade and goes part of the way to explaining why gold mine production has not expanded by as much as might be expected.

Of course, the cost squeezes have already been factored into the price of senior producers' shares - perhaps overfactored. As long as production can't ramp up all that much, gold itself won't be hampered by supply floods.

Commerzbank Technical Analyst: Gold May Go To $1,560

Commerzbank's latest forecast from its technical-analysis department is pretty low-key given gold's performance so far. It says gold might go to $1,560 by the end of the year, which would be about a 7.6% gain from current prices.

The $1,560 level is based on point and figure analysis, Commerzbank analyst Axel Rudolph said in a report on April 8. The attached chart shows gold may first climb to about $1,515, the 161.8 percent extension of the February 2010 to June 2010 gain, projected from the July low, one of the levels singled out in so-called Fibonacci analysis.

“Other point and figure targets are at $1,515 and $1,530, so the $1,515 zone seems important, together with the psychological $1,500 level,” Rudolph said by e-mail yesterday. A price of $1,500 may be achieved before three months, he wrote....

Given that analysts are normally optimistic, this forecast looks unusually cautious. They may be lowballing so as to score a hit, but their relatively low target hints that there's some worry over gold's high price.

Standard Chartered Forecast Spreads

If Stanadrd Chartered's analysts were hoping for their forecast of $2100 gold to go viral, they've gotten their wish. Reversing their previously bearish stance has gotten them a fair bit of exposure for their call. The latest person to pass it along is Richard Evans of the Telegraph. Rather than comment, he contents himself with a summary.

Rising demand for gold in China and India will drive the precious metal's continued bull run, analysts at Standard Chartered, the Asia-focused bank, predicted. They said low interest rates in America and a time lag before mines started supplying more gold would see the rally extend to at least 2014....

When one bank's forecast goes viral, there's an incentive for others to try. We may see another formerly skeptical institution join the party.

Marc Faber Says Gold Still Cheap Relative To Fed Money Printing

Veteran Faber-watchers will be familiar with his point, but he is sticking to it. As he explained to CNBC, he's still saying that gold is cheap when the Federal Reserve's inflating is taken into account.

...Investments in hard assets will be good buys in the future as Chairman Ben Bernanke and the rest of the Fed continue the liquidity-friendly policies, Faber said.

However, that also will mean bad news for consumers, who will pay more for food, energy and a broad spectrum of other goods as inflation accelerates.

That will occur, Faber said, even if the Fed enacts incremental interest rate increases. That's because small raises won't be able to keep pace with inflation and thus won't slow down the hike in prices in real dollar terms.

"One day they will increase it by a quarter percent. But what does it mean when commodity prices are going through the roof, energy prices are going up, health care costs are going up, insurance premiums are going up?" he said. "Everything is going up. Only at the Federal Reserve is there no inflation."

Yep, Dr. Faber is still the same man. In pegging Fed tightening action as coming too late and being too little, the odds are in his favour. That's been the standard modus operandi ever since the Great Depression.

Standard Chartered Calls For $2,100 Gold In 2014

Accroding to the Financial Times' write-up of its forecast, Standard Chartered is beginning to work in numbers that formerly were confined to hard-core goldbugs. Basing its forecast on the gold super-cycle, its gold team said that gold could peak at more than $2,100 in three year's time. They also included an outside-chance call of more than $4,800 by 2020. The reason given was not an impending inflation crisis, but a more sedate justification: rising world demand, particularly in Asia.

"We find that there is a powerful relationship between income per head in Asian emerging markets and the gold price, which suggests further significant upside for gold," it said in the report. "Also, our FX team is forecasting further (dollar) weakness against the Chinese yuan and Indian rupee."...

Our base-case forecast is that prices rally to peak at an average $2,107 an ounce in 2014, although our statistical modelling also suggests a possible 'super-bull' scenario of gold prices rallying up to $4,869 an ounce in nominal terms by 2020."

With regard to real interest rates, Standard Chartered doesn't think that rates will be hiked enough to make for high real rates until several years from now. What they're worried about is higher gold prices calling forth supply increases.


The number is impressive, but a run from today's $1,460 to $2,107 in 2014 imples an annual growth rate of about 11% if the average is hit in the middle of the year. That's less than gold's annual percentage gain over the last ten years. $4,869 in ten years' time implies an annual growth rate of 12.8% in those ten years, which is close to gold's annual gain over the past ten.

So, this forecast isn't that off-the-wall. Essentially, it says that gold will continue doing what it's been doing for the next three years and possibly seven more.

Morningstar Reduces Gold Price Forecast Due To Marginal-Cost Analysis

Seeing gold as a commodity, Morningstar has reduced its forecast for gold because it estimates the marginal cost of production for the metal at $1,100/oz. The explanation behind the forecast does acknowledge that little gold is consumed, but it takes the perspective that gold's asset status means there's a large potential supply that can be dumped on the market. It also acknowledges the investment character of gold demand, which detracts from marginal-cost analysis on the high side. Despite those weak points, the forecast is based upon that margainal-cost analysis: the author does believe that gold should fall to $1,100 a ounce.

Our long-term gold price assumption of $1,100 (in today's dollars) attempts to capture both the cash costs of production and the capital costs of mine development for the marginal miner. Breaking that sum down into its constituent parts, we estimate that the highest cost miners produced gold at a cash cost of $900-$1,000 per ounce in 2010. Amortization, a decent proxy for capital costs, runs at about $100-$200 per ounce. While the industry supply curve is dynamic, we believe that, in the future, lower costs for royalties, consumables, and employee bonus schemes (all positively correlated with gold prices) will be offset by declining ore grades....

[W]e will revert to an inflation-adjusted long-term gold price forecast. In practice, this means we've cut our price forecast for 2014 to $1,200 from $1,515 and our forecast for 2015 to $1,236 from $1,579.

Mornigstar is an equity research firm, and its forecast is going to be used for discounted cash-flow analysis. Its prime use is going to be for fair-value estimates of gold producers' value, which dovetails with a conservative bias. It'll also be used as a gauge to ferret out low-cost producers.


Despite its limited use, which makes sense in Morningstar's circle of competence, the forecast itself isn't worth taking all that seriously. There's a sense that the analyst behind it is using the same old tools for an asset that doesn't quite fit the same old methodolgies. Although less crude than the analyst who scoffs at gold because equity metrics don't apply to it, Morningstar's take does have the character of a screwdriver expert using a hammer as if it were a screwdriver.

Analysts Now Settling On $1,500 Price Target

As gold makes a new record high, $1,500 is being looked at more and more. An example is Anne-Laure Tremblay, who believes that gold will average $1,500 this year.

"We see gold averaging $1,500/oz for 2011 and peaking at an average of $1,600/oz. Low interest rates combined with higher inflation expectations mean that expected real rates of return are negative, which is supportive for gold prices, as it is for other commodities. Inflationary pressures, notably in China, boost demand for gold bars and jewelry as a hedge,” she told CNBC.com.

The bedrock for those forecasts is continued easy-money policy by the Fed and a world awash in liquidity as a result of central banks combatting the '08 crisis and its aftermath.

Another analyst put the kibosh on the idea that gold is in a bubble. He acknowledged gold's ascent, but said its volatility [both downwards and upwards] is still fairly low. In bubble conditions, [primarily upward] volatility explodes.