Why Gold Will See $2,000 An Ounce Sooner Rather Th
So gold did not go to $2,000 an ounce by the end of September as was discussed last month, but that does not mean it will not get there, eventually.
Gold gave back almost all of the gain it had in August (12%) inSeptember, as the short term mentality of "return of capital, notreturn on capital" overtook the financial markets, and sent every assetclass, save for the U.S. dollar, spiraling down. Gold lost 11% duringthe month, despite none of the world's economic issues being solved.
In August we had the S&P downgrade of U.S. debt, the renewal ofthe Eurozone problems, and slowing growth. September saw much of thesame, except now there are fears that the debt crisis in 2008 thathappened in the U.S. is happening in Europe. We also saw the concernsthat perhaps China is slowing more than anyone has given it credit for.The price of copper has come down drastically, to almost $3 per pound.In a no-growth environment, asset classes across the spectrum will bethrashed, and precious metals are not any exception.
Still, despite all of this turmoil and worries of the month ofSeptember, governments have not really given into the fact that the onlyway to solve a balance sheet recession is time and letting the debt getworked off, not adding to debt levels. As such, there are rumors thatdespite the Federal Reserve already doing Operation Twist, (perhaps to no avail), the Fed may do an additional round of quantitative easing.
Our current administration believes that spending is the approach togetting out of this current recession, despite record high deficits.When the volatility starts to subside, we may see the return of gold asone of the best asset classes, as governments around the world start thecurrency wars, and debase their currencies even more. There isspeculation that the European Central Bank could lower interest rates atits next meeting, and that could further weaken its currency, makinggold more expensive in that currency.
We are also starting to move into the holiday buying season, whichtends to push prices higher. In India, gold is considered a big gift,and gold prices generally rise as we get towards the end of the year.
There is still a crisis of confidence around the world, although ithas calmed down somewhat. There is also concern that as the thirdquarter comes to a close, we will see earnings reports for a lot ofcompanies be revised down, and money has to go somewhere. It could flowto the safe havens, like Treasuries or the U.S. dollar, but ultimately,it will revert out of the U.S. dollar and back into commodities, mostnotably gold.
If the Fed does enact "QE3" soon, and the ECB cuts interest rates,the currency war will be on. With that, we could see trade wars betweencountries, and then perhaps, even a real war. If that happens, thereis no telling where gold could go, perhaps even higher than anyone hasever imagined.
Greece is still a mess, and may default sooner rather than later.The European Financial Stability Facility has not been leveraged orincreased, and can not come close to helping out Spain or Italy ifthings get worse over there. We may be in this kind of environment for avery long time, and money will have to go somewhere to get a return.
When you are dealing with the "new normal" as PIMCO suggests we arein, very few assets classes will return any kind of meaningfulperformance. Gold may be the benefit of that lack of performance, givenits safe haven nature.