Unless we are to believe that the central banks of developing countries are engaging in a speculative bubblefest, then the price of gold is still terribly undervalued from years of COMEX paper manipulation. Broke and unemployed Americans selling their trinkets at kiosks in malls and lemming investors clamoring to GLD is not what is sending gold to the moon. Central banks are madly fleeing from the dollar – this is the seismic action that is moving the gold market by leaps and bounds. Gold rises by $50 per week when massive quantities are bought by central banks – not by hedge funds and Joe Six Pack – and that’s precisely what has been happening.
The IMF just sold 10 TONS to Sri Lanka on Wednesday. India bought 200 tonnes in October, Mauritius bought 2 tons 2 weeks ago, and India is planning to buy the IMF’s remaining stock next month.
This ain’t a bubble. You can expect the price of gold to return to $350/oz when the U.S. debt load falls under $1 trillion and the Fed raises interest rates to pre-2007 levels.
Good luck with that. And until then, as our currency flails in its death throes, you might as well accustom yourself to gold prices that will make your head spin.
“Stephen Jen from the hedge fund Blue Gold Capital has a warning for those who think that gold has risen far too high, is necessarily in a speculative bubble, and must soon come clattering back down.
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Mr Jen is an expert on sovereign wealth funds from his days at Morgan Stanley. The gold story — essentially — is that the rising economic powers of Asia, the Middle East, and the commodity bloc are rejecting Western fiat currencies. China, India, and Russia have all been buying gold on a large scale over recent months.
Why should that stop when the AAA club of sovereign debtors is pushing towards the danger threshold of 100pc of GDP?
These new players account for almost all the accumulation of foreign currency reserves worldwide over the last five years, so what they do matters enormously.
After crunching the numbers, Mr Jen found that the share of gold in their reserves is just 2.2pc compared to 38pc for the Old World (perhaps we should just call them the deadbeats from now on). They would have to buy $115bn of gold at current prices to raise their bullion to just 5pc of total reserves, and $700bn to reach just half western levels.
The killer-term here is at current prices since any such move in the tiny global market for gold would send prices into the stratosphere.
