I believe it’s going a lot higher…it’s going to have a parabolic spike, caused by some event or some loss of confidence…a US dollar crisis would be a perfect example. That will cause gold to go through the roof, and then everybody will want to own it…I don’t think we’re even close to that yet…Gold will probably have a much greater run than some of the other hard assets–because it’s also a currency - Frank Giustra, mining industry entrepreneur (one of the "architects" of Goldcorp)That quote is from an incredible interview with Frank Giustra. Well worth hearing: LINK
My business partner was having a discussion about the current fiscal/financial situation in this country with an old friend of his. I think his friend was trying to get his thought process around the scope of the problem and how to fix it. His friend was trying to work out the math on the Federal budget deficit - well, essentially all of the numbers as they are presented by the Government. He is also trying to understand why gold would be a large piece of the "solution puzzle." What I sensed in his thought process was a high degree of "hope" and a misunderstanding of the numbers as presented by the Government.
But "balancing" the Federal budget isn't a matter of just cutting back on medicare and social security. I don't know exactly which areas of the various Government websites that my partner's friend was getting his numbers from and I don't know to what degree he understands that the numbers are highly massaged and misleading.
You could cut all entitlements to zero and the Government still doesn't have a balanced budget. You could cut all defense spending to zero and the budget isn't balanced. The reported budget isn't even the true budget. The cost of the FNM/FRE bailout is not included in the reported budget. There's a lot of defense spending that is not included. How about the highly underfunded status of the Federal pension system? The reason it's underfunded is that the Government plays games with the contributions in order to "shave" expenses from the budget. If the Federal pension were properly funded each year the budget deficit would be significantly wider. Suffice it to say that that the Government is mathematically insolvent and the solution will not be found in working within the system as it currently exists. There needs to be a huge "reset" of everything. The "reset" process can occur in several ways, all of which will entail a substantial decline in the standard of living for the 99.5%'ers.
With regard to gold, gold isn't an investment. Gold is a currency. It's only an investment to the extent that its value as a currency is cheap relative to all other currencies. The only value behind any paper fiat currency is the "faith" that the issuing Government will maintain supply of the currency relative to the wealth and economic output of the issuing country. We're well beyond that ability now in every currency. Right now the only "value" of the U.S. dollar is the Government's ability to print more currency in order to avoid default on the Government debt.
At some point the gold standard will be restored to the global economic system. I don't know which country will force the issue and I don't know when. But in order to create the financial "reset" that will be required to restructure and discharge inter-Governmental debt obligations, the value of gold will have to be reset to a much higher level in current dollar/euro/yen/yuan terms. Much higher. Ron Paul wrote a brief essay addressing this issue. The essay summarizes how the dollar engineered into a pure fiat currency and was enabled to remain the world's reserve currency: LINK The only idea in this essay with which I disagree is the notion that it's not too late to save the U.S. dollar's status as the world's reserve currency. There's been too much damage and our country has crossed the Rubicon of dollar destruction.
Whether or not the public ever jumps on this bandwagon and gets it before the reset occurs is irrelevant. The public participation in driving a bull market is only relevant to the extent that it provides the buyer of last resort for the insiders and smart money to dump (greater fool dynamic). That will not be required in this situation because it will be the Governments which determine the reset price, not the markets.
Look at just the U.S. The U.S. supposedly owns 8100 tonnes of gold. However, there is a question of to what degree the U.S. gold has been encumbered by financial transactions like swaps and leases. The Fed surreptitiously admitted that it uses the Treasury gold for swaps. It is also likely that it has been largely leased out. We don't know for sure and the Fed won't let anyone see the real books and records on this. GATA has been waging a legal battle to force the Fed to release all of its records related to its management of the U.S. gold reserve but so far the Fed has prevailed in curiously maintaining the secrecy regarding the truth about the American taxpayer's gold. And it is indeed curious...
But let's assume that the U.S. gold is intact. And let's assume that the world were to resort to the old gold standard which required the value of any country's gold to represent 40% of the country's reserves. In order for the U.S. to "monetize" its $16 trillion of on-balance-sheet debt, the price of gold would have to be reset to $23,500/oz. That's just the direct U.S. Treasury debt and that doesn't include all the other non-direct, non-current debt obligations. It doesn't include the $7 trillion FNM/FRE debt guarantees. And it doesn't address the private sector debt load in this country.
Now assume the U.S. gold is partially or fully encumbered by hypothecation transactions. You can see where this is going. The public will never understand this and the Government is doing its best to make sure this doesn't happen.
The bottom line is that the world is going to have to engage in a global "reset" in order to restructure and solve the massive global debt problem. This will either be done peacefully using gold as the measuring standard for wealth or it will be done through war. If you think I'm wrong, just look at the numbers presented in this article: LINK