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Gold Could Hit $46,167 on Fed Deb Monetization

Commodities / Gold and Silver 2010 Aug 02, 2010 - 08:53 AM GMT

By: Larry_Edelson

Commodities

Best Financial Markets Analysis ArticleI have some important ground to cover with you today, so let me get started right away — but first, with a warning I want to get on the official record …

No matter what happens in the world today …


No matter what happens in the markets …

No matter how bad the economic news may be …

Nor how positive it may seem at times … Hold on to all your core gold holdings!

That’s especially important for you to understand today — because so many analysts are now saying that gold’s recent decline is the start of something big, a disaster in the gold market … and they want to shake you out of your positions.

But don’t you dare fall for it. Because if you do, you will be sorry.

Why can I say that so with such conviction? Simple: Gold is a win-win investment. Period.

First, and foremost, understand this: There are really only two possible economic scenarios that could unfold going forward …

Scenario #1: [LEAST LIKELY] The current spate of bad economic news abates … the stock market’s recent rally continues … talk of a double-dip recession recedes … the U.S. economy begins to truly recover.

All looks hunky-dory. The Federal Reserve’s efforts to save the U.S. economy and financial system succeed.

So what happens next under this, albeit least likely, scenario?

The credit crunch affecting homeowners and businesses starts to ease … banks start lending more money … credit flows through the pipelines …

And the trillions of paper dollars the Federal Reserve has created begin to work their way through the system.

In a year or two, perhaps less, normal credit creation has fully resumed. Our fractional reserve banking system takes over and begins multiplying the lending again, up to $9 for every new dollar of money created by the Federal Reserve.

Nearly $18 trillion of largely watered down money begins to flood the U.S. economy.

But because it was money that had no reason for existence to begin with … and was merely monopoly money printed up by the Federal Reserve — guess what happens?

Inflation takes off to the upside like a bat out of hell.

And no matter how hard the Federal Reserve tries to reverse its policies and reign in the inflation, prices for almost everything begin to move up very sharply.

Obviously, gold will continue to do quite nicely under this scenario. How nicely? I’ll tell you in a minute.

First, consider …

Scenario #2 [MOST LIKELY]: The recent slew of bad economic news continues … the U.S. economy goes from bad to worse … stocks plunge …

And it becomes painfully clear that government and central banks’ rescue efforts have failed. Here and in Europe, economies slump again, and sovereign debt defaults steamroll across the globe.

The Fed and other central banks pump trillions more dollars into their economies.

But all to no avail, because it also becomes painfully clear to almost everyone that countries in Europe and the U.S. are BANKRUPT. And so are their central banks.

What happens under this scenario?

The euro and the U.S. dollar race each other to the bottom of the heap of paper currencies that have failed. Both currencies dramatically lose purchasing power … and the entire Western world plunges into a depression.

The world’s monetary system is effectively destroyed, and collapses in a quagmire of debts that can never be repaid. A new monetary system is ushered in.

 Whatever you do, hold on to your gold holdings — or you'll be sorry you didn't.
Whatever you do, hold on to your gold holdings — or you’ll be sorry you didn’t.

The Bottom Line …

In Scenario #1 — I see gold easily hitting my MINIMUM TARGET of $2,300 an ounce, the inflation-adjusted high that would be equivalent to what $850 gold was in January 1980.

So to me, $2,300 as a minimum target for gold is a fait accompli.

But in Scenario #2 — gold could easily exceed $2,300 an ounce … and head to $5,000 an ounce or even more. Perhaps even $46,167 an ounce, which is what gold would have to be priced at if the Fed monetized the country’s 287 million ounces of gold reserves and geared it to the current national debt of $13.25 trillion.

So you see, no matter how you look at it, gold is cheap. And it’s your number one insurance policy going forward. Don’t you forget it.

Moreover, you should use any weakness in gold and gold shares to accumulate more positions. Especially my favorites, names like Agnico-Eagle Mines (AEM), Goldcorp Inc. (GG) and Kinross Gold Corp. (KGC).

And always keep my four mining share rules in mind, too …

Rule #1: Never invest in just one mining company. Rather, invest in a minimum of three at a time for diversification.

Rule #2: Stay away from mining companies that hedge more than 50% of their in-ground gold reserves, or their annual gold production. In a rising gold market, those so-called “hedges” could cause serious losses.

Rule #3: For gold mining shares, I like to use a trailing 10% stop loss to help reduce risk. Don’t lower the stop when the market moves against you.

But raise it each time the stock gains 3% from your entry price on a closing basis. If you’re stopped out, don’t fret. Assuming there hasn’t been any serious adverse fundamental change in the company, there should be ample opportunity to get back in — either on the next dip, or when the stock shows renewed strength.

Rule #4: Always keep the big picture in view. The gold strategies I’m talking about here are designed for your core, long-term portfolio. What the price of gold does from one day to the next should not be an issue for you. You’re riding a major trend. Let it do most of the work for you.

Best wishes,

Larry

P.S. ALL of my specific picks in gold shares, alternative gold investments, oil, natural resources — and more — to help you protect and grow your money for years to come, are available via membership in my Real Wealth Report.

At $99, it is truly a bargain, and I would not be surprised if just one of my recommendations covers the cost of the membership several times over. Click here to join now.

This investment news is brought to you by Uncommon Wisdom. Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com.


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