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Gold - $2,000 oz or $3,000 oz?

Tom Winnifrith
Saturday 2 June 2012

Gold raced ahead on Friday by almost $100 to $1625 oz. I have long predicted $2,000 gold for 2012 – I actually think we are heading rather higher. For weeks gold has been slipping (to a low of $1525). This has not been the fault of gold but of the morons who run (I use the word loosely) the EU. As the Euro has tanked there has been a flight to the US dollar and gold has slipped in dollar terms as a result. But now there are worries about the US.

Let us start with the US. It fiddles its job stats to hide the grim truth. The reality is that those without work are at levels not seen since the 1930s. What recovery the US has seen so far this year has been a largely jobless one. It is not for want of trying. President Obama has chucked gazillions at daft job creation programmes which create a few posts for overpaid paper-shufflers and diversity co-ordinators inside the Beltway but do not actually create any real jobs. All these programmes do is serve to swell the deficit and US Government debt but that is an issue most Americans are happy to park until after November’s election.

However on Friday quite dire jobs and other economic data came out of the US. The problems affecting Europe are now causing contagion Stateside. It is now only a matter of when – not if – Ben Bernanke starts the printing presses again for QE3. And thus America finds itself with a greater Government debt/GDP ratio than Italy, with stagnating economic growth, with chronic unemployment and thus inevitably resorting to the printing press on a scale as yet unseen. So why on earth hold dollars as a safe haven?

Well dollars are not Euros. Greece is bust. So is Spain. We have runs on the banks in both countries. Sovereign default is somewhere between inevitable and incredibly likely. And if one Domino topples others have to follow. What is the non PIIG EU banking exposure to the PIIIGS? How much of non PIIG EU trade is with the PIIGS? How many non PIIG EU residents hold PIIG assets? I have no idea and doubt anyone does really. But while I would argue that brave Hellas should default and go back to the drachma to “share its pain” – that pain will be felt across Europe and as such the single currency are just holed. And before the Jubilee celebrating Brits get too chippy: the UK is also up to its eyeballs in debt, our banks have loaned gazillions to the PIIGS and enough of our trade is with the EU to mean that EU meltdown will seriously hurt here too. Sterling is not a safe currency.

And so we come back to gold. I have argued for yonks that fiat currencies only hold their value because the population believes in them. Right now there is no reason to believe in any of them. Gold, on the other hand, is a very scarce resource and is a currency. As such as BOTH the EU and US face troubles not seen for decades gold could well shoot well past $2,000 oz. Indeed $3,000 is now far from fanciful.

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About Tom Winnifrith
Tom Winnifrith is the editor of When he is not harvesting olives in Greece, he is (planning to) raise goats in Wales.
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