The mainstream media tends to jumble all gold bulls together, but let me tell you, all gold bugs are not alike. Price targets for gold can range anywhere from $1,500 to $15,000, so even within the gold bug community there is some dissension. Deciding which gold thesis to believe is critical, since it will determine whether you make a fortune or get left holding the bag as gold inevitably collapses in price.
I’m in the gold $2,000-$3,000 camp. At these price levels, I will do some serious due diligence to see whether the gold bull is sustainable. While I believe $5,000 gold is in the realm of possibility, $15,000 gold is a little extreme for me. I highly doubt global economic leaders will allow gold to rise to those levels without intervening and reordering currency arrangements.
Below I’ve included a video from Mike Maloney, who is someone in the $10,000-$15,000 camp. He authored a book, “The Rich Dad’s Guide to Gold & Silver Investing” that I highly recommend. It’s a fast read with some good historical information. While I don’t agree with his price projections, he does make a couple of good points in the video.
Maloney argues that the price of gold tends to correlate with base money supply plus outstanding revolving credit. Based on current levels of credit, Maloney sees the price of gold rising to $15,000. He notes that gold has done an accounting of sorts to match the rising money supply several times in history, including 1980 and 1934. Can this happen again? Only time will tell.
The average person probably doesn’t realize that money is borrowed into existence. Banking is such a profitable business because banks can lend money they don’t have via the fractional reserve system. This system is amoral at best because when you can’t pay your mortgage the bank forecloses on you and takes ownership even though they did not legitimately have the money to grant you the loan in the first place. Now I know a lot of people who have grown up in this system will argue me on this point, but read your history- the 30-year mortgage is a relatively modern phenomenon. Look at all the news concerning mortgage fraud that is now coming to light; there is a lot more risk to the banking system than people suspect. Securities were originated on mortgages that did not meet basic underwriting standards. Banks were aware of these shortcomings and went short the very same securities they issued, derailing pension funds in the process. Baby Boomers don’t realize that their retirements are at risk because Mortgage Backed Securities continue to be repackaged in dubious ways to garner unjustified AAA ratings. Banks are scrambling to meet capital ratio requirements by bolstering valuations of securities in dubious fashion. At the end of the day, I believe a lot of these investment banks are going to crash.
Anyway, by some estimates, the government owns about 90% of housing in America through Fannie Mae and Freddie Mac. Connect the dots- this isn’t a good trend. When I look to the future, I can’t help but see a currency crisis develop. Trust me, it is in the cards. The Fed owns so much toxic waste at par that I don’t see how the floodgates won’t eventually open in a big way. We have not seen the end of quantitative easing by a long shot. Things will get worse before they get better. Gold is going to rise in defiance of all skeptics who have missed out on the biggest bull market of our generation. To all the gold bulls out there, I can assure you that you are positioned correctly.
