Today from LeMetropolecafe

How high is high?

To all; how high is high? Or better yet, at what price will Gold "top out"? This question has been popping up more frequently. First off, the real question is "how low is low?" (for the Dollar). Keep in mind that currencies can and have gone to ZERO in th past. Many numbers have been bandied about, $1,650, $3,000-$5,000, $6,500, and even $10,000 per ounce! Wow! We're all going to be rich when Gold "gets there"! I don't think so, with all due respect to those making these forecasts, as I've mentioned before I don't think anyone can make a Dollar/Gold forecast with any certainty.

Let's do a little math. Back in the '70's Gold topped out at $875 (for about 30 minutes) after "starting from $35 per ounce. We bottomed back in 2001 at $252, a similar percentage move to the 70's would leave us with $6,300 as a target. But things are so different and further "stretched" today that I don't think you can look at this ratio. For example, debt levels across the board were far more conservative than they are today. The money supply growth today has far exceeded any nightmares one might have had back then. The Fed still had options such as raising rates to 20%, I would guess that even a 2-3% Fed funds rate would be enough to implode the system today. The Fed must monetize now or the system will die, not so back in the 70's.

I believe we are currently on the edge of a "systemic" event where the Sun might not financially rise tomorrow (at least on this planet). The fear back in the 70's was this sort of "systemic" event that did not happen because the US, corporations and individuals still had the ability to "leverage up". The entire system has already used this "solution" and thus cannot be used again. Today there is only one more possible bubble to blow, Gold, Silver and commodities. Where would Gold and the Dollar relationship have gone back in 1980 if the US had bankrupted? The answer is anybody's guess.

This is why I believe that it is truly "anybody's guess" today because no one really knows how much Gold still exists in Ft. Knox. No one knows what real Gold is behind any "paper products" for that matter. No one knows how many Dollars really exist (not to mention Dollar based derivatives). Can anyone trust any financial numbers that are generated by Washington or Wall Street? I guess you can but it will probably be hazardous to your financial health.

I won't even try to to venture a guess, I plan to let the market give me a clue as to where the true values will settle out. Mr. Jim Sinclair and Alf Fields both believe Gold will move to a "banded plateau" and then move based on money supply vs. Gold reserves, I completely agree. As a side note, how brilliant must Mr. Sinclair be? He sold ALL of his Gold holdings on the exact top day back in January 1980 and then went off the radar screen until the bottom in the year 2001, absolutely incredible!

When, not if, this goes "systemic", no one can put a Dollar price on Gold. Thinking back to Wiemar Germany, Gold started at 170 Reichmarks to the ounce and the currency was discontinued when it took TRILLIONS to purchase one ounce just 5 years later. Why is the US any different today than Wiemar Germany was back in the early 20's? The answer is "it's not!", the only difference is that we have computers today which makes creating "money" that much easier and cheaper because paper and ink are no longer an expense. Also, if you think about it, computers will allow the coming panic to happen that much faster to the point of "an overnight hyperinflation".

I'm writing this piece because I want you to be aware that it may take $100 billion to purchase an ounce of Gold and if you sell, you might be getting ripped off! In other words, don't sell your Gold for Dollars. Wait until we have a new currency and give it time for a proper Gold/new currency level to arise. I just don't think you will need to "sell" your Gold quickly or miss the high for the next 30 years similar to 1980. Currencies will become priced in Gold rather than vice versa. Commodities will be priced in Gold. What I am saying is that Gold will resume its correct role as a or THE reserve currency. Regards, Bill H.