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Inflation-powered Gold Price Rise Imminent

In February, I went on Canada’s Business News Network (BNN) and proclaimed on national television that gold would be $1,500 by summer. Yesterday, host Andy Bell asked me if I thought gold still had a chance of hitting $1500, to which I replied that I thought it was not a matter of if, but when.

BNN being BNN, you don’t exactly get the opportunity to elaborate on your statements, and in the flash of time that is available, you can only summarize your thinking in the mode of sweeping generalizations. So here then, is the thinking that supports, in my view, a preliminary stop at $1,500 per ounce for the price of gold before new highs are broached shortly thereafter.

The number 9 ranked search of the internet according to Google trends is for www.makinghomeaffordable.gov. This is a website established and maintained by the Obama administration as a resource for homeowners who are finding it difficult to keep up with their mortgage payments, or may be facing foreclosure.

The fact that MakingHomeAffordable.gov is the ninth most popular search on Google indicates that the number of homeowners facing mortgage delinquency and possible foreclosure are much higher than those reported in the statistics released by the U.S. Government. Many of these people aren’t yet delinquent, and may be months away from serious trouble.

The second most popular Google search is for www.freeourhealthcarenow.com. This site is a petition to “stop any increased role of the government in health care decisions” and to “protect [the rights of petitioners] to choose their own doctors and hospitals without delay or denial, to obtain care that is patient-centered, and to have health insurance that is personal, portable and best suits [the petitioner’s] needs”.

Despite the rambling and poorly worded phrasing of the petition, the site is attracting a substantial amount of search traffic, and that is certainly symptomatic of a growing health care crisis in the United States.

According to a report in the American Journal of Medicine, 62% of all bankruptcies in 2007 were related to hardship induced by medical bills.

According to the report:

“Using a conservative definition, 62.1% of all bankruptcies in 2007 were medical; 92% of These medical debtors had medical debts over $5000, or 10% of pretax family income. The rest met criteria for medical bankruptcy because they had lost significant income due to illness or mortgaged a home to pay medical bills. Most medical debtors were well educated, owned homes, and had middle-class occupations. Three quarters had health insurance. Using identical definitions in 2001 and 2007, the share of bankruptcies attributable to medical problems rose by 49.6%.”

So the state of health care in the U.S., with little hope of a near term solution, continues to cause extreme financial hardship.

Meanwhile, the State of California has terminated new contracts it initiated weeks ago with stimulus money from the Obama administration as it sought ways to ameliorate budget shortfalls that threaten the financial viability of the State. In other words, stimulus dollars are flowing not towards new projects, for the most part, but are being used to prop up financially shaky government institutions.

So for all the money being printed, there is little meaningful job creation, no infrastructure improvement, and little to no effect on the Real Economy.

In the big picture, global investors will interpret this as continuing economic deterioration in the United States despite the apparent “economic recovery” being touted by politicians and media. The problem with our world right now is that there is a suspension of reality predicated by the ceaseless creation of money. There has yet to materialize any financial repercussion for this massive dilution of the value of the dollar.

But just as the house of cards crashed down on the shoulders of the purveyors of sub prime mortgages years after the scheme matured, the major fallout from this so called “quantitative easing” and “stimulus” is yet ahead of us. You simply can’t undermine your currency’s value through excessive creation of it without an inevitable collapse in its value at some point down the road.

With the banks now paying back TARP funds, while the real economy continues to decline, the illusion of green shoots and recovery becomes less viable and applicable solely to the banking industry, who has now dumped the most toxic holdings of their balance sheets, and is freshly capitalized with taxpayer cash to reignite the taxpayer fleecing process.

The value of the U.S. Dollar relative to other currencies, and especially to gold, the most reliable currency and arguably the base money against which all currencies are valued, is in a continuing state of freefall, though these media and government induced pesky rallies serve the Treasury’s requirement of marketing bonds to sovereign investors who must either buy or watch the value of their own reserves of U.S. dollars deteriorate.

The opportunity at hand is for American dollar holders to convert them into gold while they still can at an acceptable rate. At some point, growing disgust with U.S. deficits and dollars is going to induce an ever greater move away from funny money and into gold.

The Chinese know this, and have been seeking to purchase large tonnage orders of bullion from U.S. suppliers as reasonably priced bulk purchases become harder to source.

Meanwhile, mainstream America remains obsessed with David Carradine, Adam Lambert and Melissa Gilbert, and continues to ignore financial reality in favor of Mortal Kombat (what choice do they have, since most of them are ruined financially anyways).

Buy gold now while you still can. Gold is going to $1,500 and beyond.

SOURCE: http://www.midasletter.com/commentary/090609-1_Inflation-powered-gold-price-rise-imminent.php


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