This Is A Dynamic Image, So Price May Differ From Original Post Date
At the risk of celebrating too early as I watched gold sky-rocket this morning, I waited until the end of day to have gold confirm a $35 rocket ride and a closing price of $1,384 and change. I won’t go into the QE2 analysis – because you (should) know that story very well by now.  In case you don’t, here is a quick link to Google’s QE2 + Gold news articles.
When I first started this blog, one of the topic categories I created was “Gold $1,000” in February of 2007. It was ambitious because gold was trading in the $650 range, yet here we are trading 113% higher after 45 months. Today, I’m officially changing the name of the category to Gold $2,000 and feel more confident in that number being reached than I was about gold hitting $1,000 back in February 2007.
Why Is Gold A Better Bet To Hit $2,000 Than It was To Hit $1,000?
I will quote from one of my previous posts as the foundation for gold appreciation remain intact and even stronger than before:
Gold is now silently being recognized as the world’s reserve currency. Fiat currencies are being printed at will with no accountability. This paper inflation is weakening the purchasing power of world currencies, and the risk of rendering them worthless is rising. Nations have elected to print and spend instead of stimulate economies through investment, tax reductions, and technological advances. Gold is now seen as a safe haven. Our conservative investment portfolio has a concentration in Gold, Mining Stocks, and Silver in anticipation of this fundamental expectation, and in response to technical analysis charts. We believe Gold is going much higher over the coming years. (Via Technical Indicator Index)
Bottom line? Most world Governments are broke. They’re broke at the Federal, State and Local levels. The response has been to print and borrow more money. You don’t need a fancy graph or chart to tell this is going to end badly. Rather, just imagine what your grandfather would say if he was sitting beside you right now. When you’re broke, you cut spending, stop borrowing and sell assets to pay down your debt. You make sacrifices and start all over again as best you can. As an individual or small business, this is what your lenders would force you to do.
Governments are no different except for the fact they can photocopy as much money as they need. That’s fine and dandy in the short-term – but how much confidence would you have in the long-term prospects of someone that kept handing you photocopied IOU’s?
If you understand this concept, then you now understand why investors are losing confidence in currencies and turning to gold.
AMERICA IS FINE WITH THIS SCENARIO – SO EXPECT MORE AND MORE
To this, I will add the following new revelation – the USA is just fine with this entire scenario for one very powerful reason … they would never be able to make interest payments on their debt if Treasuries dropped and rates increased. Never. See, as long as a person/government can continue to make its monthly payments, creditors won’t call in loans no matter how nervous they are about the debt owed to them.  Make the monthly payments and everyone prays for another day.
Stop making the payments – and all hell breaks loose. Treasuries start selling off like wildfire and interest rates rocket. This very scenario happened to Greece in May when rates went from 7% to 22% in one day before the EU saved the day (temporarily).
DEVELOPING NATIONS ARE HUGE BENEFICIARIES OF QE I AND II – NO MATTER HOW MUCH THEY COMPLAIN
On the flipside, a huge beneficiary of QE1 and 2 have been developing economies. Why? American institutions are borrowing money at ridiculously low rates and putting it to work in developing economies that are actually growing.
Yes, these developing nations are publicly bitching about the risk of “heating up” from inflation – but they have two significant internal controls to keep a lid on things. Tax rates and government spending. As things heat up, they can simply raise taxes and lower government spending, leading to fiscal utopia. Citizens won’t mind because they’re making a boat load of money from $USD inflows.
You might be wondering why I didn’t add interest rates as a third inflation control tool for developing nations. I’ll leave that answer blank for now and look forward to seeing your responses below.
CONCLUSION – GOLD, GOLD GOLD
The gravy train can only stop once the US economy begins to achieve actual GDP growth, lower unemployment and rising real estate prices. When that will happen is anyone’s guess. Until then, this mad cycle will continue …. and gold will climb.
Now you know why Gold $2,000 is much more likely to happen than Gold $1,000.
Regards,
George