Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
UK House Prices Momentum Tory Seats Forecast General Election 2019 - 8th Dec 19
Why Labour is Set to Lose Sheffield Seats at General Election 2019 - 8th Dec 19
Gold and Silver Opportunity Here Is As Good As It Gets - 8th Dec 19
High Yield Bond and Transports Signal Gold Buy Signal - 8th Dec 19
Gold & Silver Stocks Belie CoT Caution - 8th Dec 19
Will Labour Government Spending Bankrupt Britain? UK Debt and Deficits - 7th Dec 19
Lib Dem Fake Tory Election Leaflets - Sheffield Hallam General Election 2019 - 7th Dec 19
You Should Be Buying Gold Stocks Now - 6th Dec 19
The End of Apple Has Begun - 6th Dec 19
How Much Crude Oil Do You Unknowingly Eat? - 6th Dec 19
Labour vs Tory Manifesto Voter Bribes Impact on UK General Election Forecast - 6th Dec 19
Gold Price Forecast – Has the Recovery Finished? - 6th Dec 19
Precious Metals Ratio Charts - 6th Dec 19
Climate Emergency vs Labour Tree Felling Councils Reality - Sheffield General Election 2019 - 6th Dec 19
What Fake UK Unemployment Statistics Predict for General Election Result 2019 - 6th Dec 19
What UK CPI, RPI and REAL INFLATION Predict for General Election Result 2019 - 5th Dec 19
Supply Crunch Coming as Silver Miners Scale Back - 5th Dec 19
Gold Will Not Surpass Its 1980 Peak - 5th Dec 19
UK House Prices Most Accurate Predictor of UK General Elections - 2019 - 5th Dec 19
7 Year Cycles Can Be Powerful And Gold Just Started One - 5th Dec 19
Lib Dems Winning Election Leaflets War Against Labour - Sheffield Hallam 2019 - 5th Dec 19
Do you like to venture out? Test yourself and see what we propose for you - 5th Dec 19
Great Ways To Make Money Over Time - 5th Dec 19
Calculating Your Personal Cost If Stock, Bond and House Prices Return To Average - 4th Dec 19
Will Labour Government Plant More Tree's than Council's Like Sheffield Fell? - 4th Dec 19
What the UK Economy GDP Growth Rate Predicts for General Election 2019 - 4th Dec 19
Gold, Silver and Stock Market Big Picture: Seat Belts Tightened - 4th Dec 19
Online Presence: What You Need to Know About What Others Know About You - 4th Dec 19
New Company Tip: How To Turn Prospects into Customers with CRM Tech - 4th Dec 19
About To Relive The 2007 US Housing Market Real Estate Crash Again? - 3rd Dec 19
How Far Will Gold Reach Before the Upcoming Reversal? - 3rd Dec 19
Is The Current Stock Market Rally A True Valuation Rally or Euphoria? - 3rd Dec 19
Why Shale Oil Not Viable at $45WTI Anymore, OPEC Can Dictate Price Again - 3rd Dec 19
Lib Dem Election Dodgy Leaflets - Sheffield Hallam Battle General Election 2019 - 3rd Dec 19
Land Rover Discovery Sport Brake Pads Uneven Wear Dash Warning Message at 2mm Mark - 3rd Dec 19
The Rise and Evolution of Bitcoin - 3rd Dec 19
Virtual games and sport, which has one related to the other - 3rd Dec 19
The Narrative About Gold is Changing Again - 2nd Dec 19
Stock Market Liquidity & Volume Diminish – What Next? - 2nd Dec 19
A Complete Guide To Finding The Best CFD Broker - 2nd Dec 19
See You On The Dark Side Of The Moon - 2nd Dec 19
Will Lib Dems Win Sheffield Hallam From Labour? General Election 2019 - 2nd Dec 19
Stock Market Where Are We?  - 1st Dec 19
Will Labour's Insane Manifesto Spending Plans Bankrupt Britain? - 1st Dec 19
Labour vs Tory Manifesto Debt Fuelled Voter Bribes Impact on UK General Election - 30th Nov 19
Growing Inequality Unrest Threatens Mining Industry - 30th Nov 19
Conspiracy Theories Are Killing This Nation - 30th Nov 19
How to Clip a Budgies / Parakeets Wings, Cut / Trim Bird's Flight Feathers - 30th Nov 19
Hidden Failure of SIFI Banks - 29th Nov 19
Use the “Ferrari Pattern” to Predictably Make 431% with IPOs - 29th Nov 19
Tax-Loss Selling Drives Down Gold and Silver Junior Stock Prices - 29th Nov 19
We Are on the Brink of the Second Great Depression - 29th Nov 19
How to Spot REAL Amazon Black Friday Bargains and Avoid FAKE Sales - 29th Nov 19

Market Oracle FREE Newsletter

UK House prices predicting general election result

Gold Price – US$700 Or US$7000?

Commodities / Gold & Silver 2019 Jan 16, 2019 - 11:09 AM GMT

By: Kelsey_Williams

Commodities

Does either of the above preclude the other?  In other words, if we expect gold to reach $7000.00 per ounce, and we are correct, does that mean that we can’t reasonably expect gold to go as low as $700.00 per ounce? Conversely, if we are predicting or expecting gold to decline from its current level and even breach $1000.00 per ounce on the downside, can $7000.00 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 bothfigures.  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 U.S dollar strengthens, the U.S. dollar price of gold declines.  This is clearly evident in the price action of gold since its high point of approximately $1900.00 per ounce in 2011. There is no way to know for certain how long relative dollar strength will last. And it is reasonable that if ongoing dollar strength takes gold below $1000, it might come to rest somewhere between $860 – 890.00 per ounce.  In January 1980, gold peaked at $850.00.  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 $700.00 per ounce.


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

I think the consensus is that an ongoing stronger U.S. 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 ten 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?  Or, is it too late?

I believe that is exactly the question that is plaguing the Federal Reserve.  And it is the 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 $1900.00) has been interpreted positively, generally; at least as far as the U.S. dollar is concerned.

Otherwise, we would not have seen the U.S. dollar price of gold drop over that time to its current level of $1290.00 (and previously as low as $1040.00 in January 2016). But even with a relatively stronger U.S. dollar, the economy still struggles. And there are indications that it could get worse.  Regardless of the Fed’s attempts to avoid it, deflationis 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 U.S. dollar.  And a much lower gold price.

Those who hold U.S. dollars would find that their purchasing power had increased.  The U.S. dollar would actually buy more, not less. But the supply of U.S. 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 U.S. 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.

A U.S. dollar that is worth more in purchasing power should be welcomed.

Unfortunately, depressed economic conditions would make life for most of us nearly unbearable.  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 price 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 U.S. dollar increases by one hundred percent, generally speaking, then we can expect a fifty percent decrease in the U.S. dollar price of gold.

As bad as those things may sound, it will likely be a lot worse.

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 governments and central banks. They are used to fund and reinforce the operation and grandiose plans of government and the big banks.

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 right a sinking ship.

And even if the attempt were made, the shock to the system would likely be too much to bear 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 ten years ago. And they barely managed to avert complete disaster – at least temporarily. 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.

Their efforts and intentions would be counter-productive and harmful. The depression in our scenario would 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 U.S. 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 U.S. dollar would be reflected in the U.S. dollar price of gold which could easily go from $700.00 to $7000.00 in months, maybe weeks.

By that time, the U.S. 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 U.S. dollar will probably set us back fifty years or more on a lifestyle basis.

So, if you are one of those who thinks that $7000.00 gold is right around the corner, better plan accordingly. And don’t discount entirely the possibility of deflation and $700.00 gold before your wish comes true.

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!

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.

© 2019 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.


© 2005-2019 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