Best of the Week
Most Popular
1. Five Charts That Show We Are on the Brink of an Unthinkable Financial Crisis- John_Mauldin
2.Bitcoin Parabolic Mania - Zeal_LLC
3.Bitcoin Doesn’t Exist – 2 - Raul_I_Meijer
4.Best Time / Month of Year to BUY a USED Car is DECEMBER, UK Analysis - Nadeem_Walayat
5.Labour Sheffield City Council Election Panic Could Prompt Suspension of Tree Felling's Private Security - N_Walayat
6.War on Gold Intensifies: It Betrays the Elitists’ Panic and Augurs Their Coming Defeat Part2 - Stewart_Dougherty
7.How High Will Gold Go? - Harry_Dent
8.Bitcoin Doesn’t Exist – Forks and Mad Max - Raul_I_Meijer
9.UK Stagflation Risk As Inflation Hits 3.1% and House Prices Fall - GoldCore
10.New EU Rules For Cross-Border Cash, Gold Bullion Movements - GoldCore
Last 7 days
Bitcoin Crash Sees Flight To Physical Gold Coins and Bars - 18th Jan 18
The Interest Rates Are What Matter In This Market - 18th Jan 18
Crude Oil Sweat, Blood and Tears - 18th Jan 18
Land Rover Discovery Sport - Week 3 HSE Black Test Review - 18th Jan 18
The North Korea Quagmire: Part 1, A Contest of Colonialism and Communism - 18th Jan 18
Understand Currency Trade and Make Plenty of Money - 18th Jan 18
Bitcoin Price Crash Below $10,000. What's Next? We have answers… - 18th Jan 18
How to Trade Gold During Second Half of January, Daily Cycle Prediction - 18th Jan 18
More U.S. States Are Knocking Down Gold & Silver Barriers - 18th Jan 18
5 Economic Predictions for 2018 - 18th Jan 18
Land Rover Discovery Sport - What You Need to Know Before Buying - Owning Week 2 - 17th Jan 18
Bitcoin and Stock Prices, Both Symptoms of Speculative Extremes! - 17th Jan 18
So That’s What Stock Market Volatility Looks Like - 17th Jan 18
Tips On Choosing the Right Forex Dealer - 17th Jan 18
Crude Oil is Starting 2018 Strong but there's Undeniable Risk to the Downside - 16th Jan 18
SPX, NDX, INDU and RUT Stock Indices all at Resistance Levels - 16th Jan 18
Silver Prices To Surge – JP Morgan Has Acquired A “Massive Quantity of Physical Silver” - 16th Jan 18
Carillion Bankruptcy and the PFI Sector Spiraling Costs Crisis, Amey, G4S, Balfour Beatty, Serco.... - 16th Jan 18
Artificial Intelligence - Extermination of Humanity - 16th Jan 18
Carillion Goes Bust, as Government Refuses to Bailout PFI Contractors Debt and Pensions Liabilities - 15th Jan 18
What Really Happens in Iran?  - 15th Jan 18
Stock Market Near an Intermediate Top? - 15th Jan 18
The Key Economic Indicator You Should Watch in 2018 - 15th Jan 18
London Property Market Crash Looms As Prices Drop To 2 1/2 Year Low - 15th Jan 18
Some Fascinating Stock Market Fibonacci Relationships... - 15th Jan 18
How to Know If This Stock Market Rally Will Continue for Two More Months? - 14th Jan 18
Everything SMIGGLE from Pencil Cases to Water Bottles, Pens and Springs! - 14th Jan 18
Land Rover Discovery Sport Very Bad MPG Fuel Economy! Real Owner's Review - 14th Jan 18
Gold Miners’ Status Updated - 13th Jan 18
Gold And Silver – Review of Annual, Qrtly, Monthly, Weekly Charts. Reality v Sentiment - 13th Jan 18
Gold GLD ETF Update.. Bear Market Reversal Watch - 13th Jan 18
Stock Market Leadership In 2018 To Come From Oil & Gas - 13th Jan 18
Stock Market Primed for a Reversal - 13th Jan 18
Live Trading Webinar: Discover 3 High-Confidence Trade Set-Ups - 13th Jan 18
Optimum Entry Point for Gold and Silver Stocks - 12th Jan 18
Stock Selloffs Great for Gold - 12th Jan 18
These 3 Facts Show Gold Is Set to Surge in 2018 - 12th Jan 18
How China is Locking Up Critical Resources in the US’s Own Backyard - 12th Jan 18
Stock futures are struggling. May reverse Today - 12th Jan 18
Three Surprising Places You See Cryptocurrency - 12th Jan 18
Semi Seconductor Stocks Canary Still Chirping, But He’s Gonna Croak in 2018 - 12th Jan 18
Land Rover Discovery Sport Panoramic Sunroof Questions Answered - 12th Jan 18
Information About Trading With Alpari And Its Advantages - 12th Jan 18
Stock Market Investing 2018 - “I Hope I’m Making a Bad Buy” - 11th Jan 18
S&P 500 Fluctuates As Stock Market May Be Topping, Or Not? - 11th Jan 18
SPECTRE Microprocessor Security Flaw - Big Brother = You - 11th Jan 18
7 Market Forecasts 2018 from the Brightest Financial Minds I Know - 11th Jan 18
It’s Not Enough to Be Contrarian - 11th Jan 18
Stocks That Take One for A Roller Coaster Ride Through the Thick And Thin Of Every Single Investment Made - 11th Jan 18
Police Arrest Tree Protester on Meersbrook Park Road, Sheffield - 10th Jan 18
Stock Market Aggressive Sell Signals - 10th Jan 18
The 2018 Decline in Precious Metals - 10th Jan 18
Gold Hits All-Time Highs Priced In Emerging Market Currencies - 10th Jan 18
TMV : 3X Leveraged Short on US Treasury Bonds - 10th Jan 18
Here are the Key Levels in Gold & Gold Miners - 10th Jan 18

Market Oracle FREE Newsletter

6 Critical Money Making Rules

Gold Price US$700? OR US$7000?

Commodities / Gold and Silver 2017 Jan 09, 2017 - 03:18 AM GMT

By: Kelsey_Williams

Commodities

Does either of the above preclude the other?  In other words, if we expect gold to reach $7000 per ounce, and we are correct, does that mean that we can’t reasonably expect gold to go as low as $700 per ounce? Conversely, if we are predicting or expecting gold to continue its current decline, and even breach $1000 per ounce on the downside, can $7000 per ounce, or anything even remotely close to that number, be a reasonable possibility?  


I do not think either one precludes the other.  In fact, I think it is entirely possible that we can see both figures.  And not necessarily spread over an inordinately long period of time, either.

Here is a possible scenario that would allow that to happen.

As the US dollar continues to strengthen, the US dollar price of gold continues to decline.  This is clearly evident in the price action of gold since its high point of approximately $1900 in 2011. There is no way to know for certain how long the current dollar strength will last.  At some specific price point the two (US dollar, gold) will find equilibrium.  And it is reasonable that if ongoing dollar strength takes gold below $1000, it might come to rest somewhere between $860 – 890.   In January, 1980, gold peaked at $850.  Revisiting that number is plausible, and well within the realm of realistic speculation.  And, yes, there are technical indicators that point to a gold price of as low as $680-700.

But what type of economic conditions might accompany the reality of that price projection?

I think the consensus is that an ongoing stronger US dollar would be accompanied by a stronger economy.  That makes sense.  But what if it doesn’t happen that way?  What if the economy continues to struggle even more?  Remember, we have been subjected to huge creations of money and credit over the past eight years.  And that is on top of similar policies and actions by the Federal Reserve over the past one hundred years. Is our economy strong enough to weather the effects of attempted normalization/withdrawal?  And, furthermore, have we already ‘killed the patient’?

I believe that is exactly the question that is plaguing the Federal Reserve.  And the very reason they have struggled with firm decisions on altering their accommodative expansion of money and credit.  This is most obvious in their lack of decisiveness regarding interest rates.

Regardless of that, whatever the Federal Reserve has done – or hasn’t done – since 2011 (when Gold peaked at $1900) has been interpreted positively, generally.  At least as far as the US dollar is concerned. Otherwise, we would not have seen the US dollar price of gold drop over that time to its current level of $1170.

But even with a stronger US dollar, the economy still struggles. And there are indications that it could get worse.  Regardless of the Fed’s attempts to avoid it, deflation is a very real possibility. An implosion of the debt pyramid and a destruction of credit would cause a settling of price levels for everything (stocks, real estate, commodities, etc.) worldwide at anywhere from 50-90 percent less than currently.  It would translate to a very strong US dollar.  And a much lower gold price.

Those who hold US dollars would find that their purchasing power had increased.  The US dollar would actually buy more, not less. But the supply of US dollars would be significantly less.  This is true deflation, and it is the exact opposite of inflation.  Of course, this would be accompanied by a complete collapse of any and all forms of real estate, commodities, stocks, etc. – pretty much any asset or item denominated in US dollars.

The most severe effects would be felt in the credit markets and in any assets whose value is primarily determined and supported by the supply of credit available.  Things would be much worse than what we experienced in 2008-12.  The biggest difference would be that the changes would result in  depression-like conditions on a scale most of us can’t even imagine.  And the depression would likely last for years, maybe even decades.

Imagine, if you will, that groceries, gasoline, and house rent cost half of what you now spend.  Whatever cash you have, or is available to you, would buy twice as much.  And you would have money available for other things.  Deflation, in and of itself, is NOT a bad thing.  Unfortunately, you might not have a job.  Or you might live in an area which experiences social unrest.  Also, there could be disruptions in transportation and the orderly supply and delivery of various goods and services.

As far as gold is concerned, its value will be determined by seeking a level that is inversely in accordance with whatever level of strength the dollar achieves. For example, if purchasing power of the US dollar increases by one hundred percent, generally speaking, then we can expect a fifty percent decrease in the US dollar price of gold.

It is quite reasonable to expect any and all of the things mentioned above.

What will make things worse will be intervention and interference by government.

Government hates deflation. And not because of any perceived negative effects on its citizens. It is because the government loses control over the system which supports its own ability to function. Inflation, fractional-reserve banking, enhanced supplies of money and credit are intentional creations of government. They are used to fund and reinforce the operation and grandiose plans of government.

Hence, we can expect government to respond decisively to any series of events which resemble those previously described. Their intentions would be clear. All efforts would be focused similarly to those employed in our previous brush with financial disaster just a few years ago. But don’t expect similar results.

The events themselves are a logical end result of a financial system which has overdosed on artificial stimulation; not entirely dissimilar to an addict’s reactions to long-term drug abuse.

Since each successive financial ‘fix’ requires a stronger dose to maintain the expected results, and since the ongoing systemic damage is cumulative, we reach a point that demands recognition of the problem, and then painful steps to resolve it successfully. The government and the Federal Reserve will not ever acknowledge the harm their policies have caused. And they will never take the steps necessary to ‘save the patient’.

And even if the attempt were made, the shock to the system would likely ‘kill the patient’ at this point. At best, they might be able to postpone the inevitable rejection.

What government definitely will do is ANYTHING AND EVERYTHING that they think will minimize, end, and reverse events which would bring about deflation.

Which is exactly what they did eight years ago. And they succeeded temporarily in keeping the patient alive. But we don’t really know how much systemic damage was done (i.e. exactly how much money and credit were created, how big is the Fed’s balance sheet and how badly inflated are the numbers, how under-capitalized are the banks). I assure you, it is much worse than anything we have been told.

Similar events today would bring about the price collapse in various markets which we discussed, as well as usher in deflation and a full-scale depression. All of this would be resisted on every front by government and the Federal Reserve. They would literally launch an all-out financial war (and maybe another real war, too) by opening the money and credit spigots full force in a futile attempt to reverse the credit implosion and negative price action of critical assets.

In effect, their efforts and intentions would be similar to those observed during the Great Depression of the thirties. The results, at best, would be similar (not productive), too. The depression in our scenario would also last much longer than needed. And the price declines which are necessary to correct the excesses of the past and cleanse the system would be countered every step of the way by regulations and programs of dubious value. The efforts of government would actually worsen things and prolong the suffering.

It is more likely, though, that the results would be much worse than anything we could expect. Even a relatively strong US dollar would be unable to survive the onslaught. In their efforts to ‘save the patient’, the government would ‘kill’ the dollar. We would likely find ourselves awash in money and credit created without regard to potential damage. All in order to stave off the inevitable results while ignoring their curing effects on a very ill economy.

As the reality of the ‘new’ Depression sets in, the failure of initial efforts by government will be seen more clearly. They will then step up their efforts. Damage to the US dollar would be reflected in the US dollar price of gold which could easily go from $700 to $7000 in months, maybe weeks.

By that time, the US dollar price of gold will be meaningless. What will be more important is owning physical gold. The turmoil, social unrest, and economic upheaval that accompanies a complete repudiation of the US dollar will probably set us back 50-60 years – or more – on a lifestyle basis.

So, if you are one of those who thinks that $7000 gold is right around the corner, better plan accordingly.

By Kelsey Williams

http://www.kelseywilliamsgold.com

Kelsey Williams is a retired financial professional living in Southern Utah.  His website, Kelsey’s Gold Facts, contains self-authored articles written for the purpose of educating others about Gold within an historical context.

© 2016 Copyright Kelsey Williams - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules