RE:Gold Mining Valuations Ridiculous AgainCleaned up excerpt:
When the world losses confidence in the Western banking system, perhaps as soon as this winter when Europe will face economic and political collapse because of the conflict with Russia, the Fed will be forced to print more and faster, and there will be runs on central banks. There are no liquid assets on these balance sheets that can be sold to support the currency. Gold will trade at a price that balances central bank balance sheets. In order for gold to back the Fed’s liabilities by a modest one third, it would currently require a price above $11,000/oz. Since markets always overshoot, $17,000, or half-backing, is a more reasonable target (the peak price in 1980 resulted in an absurd 133% backing, which today would translate to $45,000/oz). This assumes no growth in the Fed’s balance sheet. The same forces that will drive gold to those prices will also drive interest rates to a level that disallows continued deficit spending. Like third-world countries and the Soviet Union before it, the United States (and other Western powers) will be forced suddenly to balance its budget, with catastrophic effects for those dependent upon the state: the poor and the government parasites both. The economy will have to adjust radically as overcapacity liquidates, which will drive gold higher in real terms as well as nominal and cause gold mining margins to explode. Gold mining companies, such as the ones described above, ought to be the primary beneficiaries. The $100 trillion of debt (and growing) demanding $8 trillion of cash (and shrinking) has launched the dollar higher through a short squeeze. The assets most sensitive to currency have fared the worst. We are reminded that the NASDAQ bubble bust when the last short covered. We suspect the dollar bubble may do the same thing