QE3, $2,200 Gold, and the Trillion Dollar Bazooka

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It's the beginning of a new year, and there's no shortage of big headlines…

Europe is on the financial brink, Iran is a powder keg, and precious metals like gold have retreated.

It's also a time when there is no shortage of financial forecasts.

Even though these kinds of predictions about the future can be tough to make, I'll admit it's kind of fun to look forward and see what the future may hold.

Like in December 2010, when I said I expected gold to reach $1,900/oz in 2011. Some people thought that I was crazy. At the time, gold was trading for just $1,390/oz.

But just nine months later, that turned out to be a pretty good call as gold hit a new high of $1,923/oz. before eventually pulling back.

Better yet, in January 2010, I even said gold would eventually top $5,000. Of course, most people thought that call was preposterous.

Now, even Standard Chartered bank's analysts expect gold to climb to $5,000.

Gold Price Forecast: Expect Gold to Hit $2200/oz. in 2012

Today, gold price predictions like those are becoming a lot more commonplace. For instance, Goldman Sachs Group Inc. (NYSE: GS) recently set its 2012 gold target at $1,940/oz, while Morgan Stanley (NYSE: MS) now expects gold to hit $2,200.

But what's more important is to actually understand the reasons why market experts believe gold prices will continue to rise.

In fact, to support my earlier $5,000 price forecast for gold, I maintained that one of the underlying reasons was that we would eventually face a currency crisis.

At the time I wrote:

A Currency Crisis is Looming: The "PIGS" – Portugal, Italy, Greece and Spain (or "PIIGS," if you want to include Ireland) – aren't in very good fiscal shape. And they aren't alone. Iceland has already gone over the edge. The United States, the United Kingdom, and countless other economies are struggling. And that reality has ignited a crisis of confidence about fiat currencies in the minds of many investors. Money is nothing more than paper and ink, backed by the full faith and credit of the issuer. When investors find that their faith in the issuer is shaken, the value of that currency erodes. Additional sovereign-debt downgrades from ratings agencies are but one potential trigger of a currency crisis. Under such conditions, gold – the ultimate store of value, and the oldest existing form of money on earth – will soar as investors seek to protect their purchasing power.

That was two years ago…

Today, the recent downgrades of the sovereign debt ratings of France, Italy, Spain, Portugal, Cyprus, Austria, Malta, Slovakia and Slovenia by Standard and Poor's is a confirmation of those very same fears – namely, that Europe's fiscal burdens are not about to lighten.

Inevitably, that has brought about a knock-on downgrade by S&P of the Eurozone's European Financial Stability Facility (EFSF), Europe's own rescue fund.

So now we're dealing with news that the International Monetary Fund (IMF) is looking to boost its bailout fund to a whopping $1 trillion.

And get this…they're reportedly asking emerging markets – China, Brazil, Russia, India, along with oil exporting nations – to bail out the developed world.

Isn't that ironic.

European Black Swan: Potentially a $22 Trillion Problem

For the politicians, Europe is a potential fiscal nuclear device that needs to be disarmed.

According to a recent article by Al Field posted at www.24hgold.com, if just 10% of euro interest rate derivatives produce losses, it could cost the world banking system $22 trillion. That is enough to effectively bankrupt it.

This is one black swan that could well make a crash landing… and soon. You can bet none of this has been lost on the U.S. Federal Reserve either.

That's why there is increasing talk that the Fed will ride to the rescue with its third quantitative easing program, or QE 3 – something I've been saying to expect for quite a while.

And now, a major French bank has joined in on those same predictions. Société Générale SA (PINK: SCGLY) (SocGen) has indicated the Fed is will soon announce QE 3. But it doesn't end there.

They even tell us when this move towards more quantitative easing is likely.

According to SocGen, QE 3 is headed our way this coming March, focused on mortgage backed securities (MBS) purchases on the order of $600 billion over six to eight months. That would be great timing to match up with the pending presidential election. Markets will get a tremendous boost, bolstering support for Obama in the process.

SocGen also tells us what we should buy to profit from this.

They expect the euro and U.S. 10-year Treasuries to take a hit. But they do see U.S. equities, European equities, oil, and especially gold benefiting from this new round of fiat money printing.

Description: http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2011/12/SocGen%202.jpg

I'm in complete agreement on this, especially when it comes to gold.

In fact, just last month, I predicted that gold would reach $2,200/oz in 2012. That's about 33% higher than its current level near $1,650/oz.

Do the fundamentals support it? Well let's check our reasoning.

Is the Fed likely to bring on QE 3? …. Will QE 3 work and for how long?

Is the Fed likely to bring on a QE 4 or a QE 5 in the future?… Where will it all end?

What's more, is Europe likely to default outright, will austerity work, or are more printed money bailouts in store?

Keep in mind, each of these massive money-printing campaigns becomes less effective than the previous ones, so the bailouts tend to grow exponentially.

Of course, in my view defaults would be the right way to go. After all, the lenders who took the risk to lend to insolvent governments would be able to absorb quick losses. The pain would be high, but relatively short.

But I believe there's only a minuscule risk that any government is willing to take the fall for that same solution.

That's why the probabilities of ongoing and ever-increasing bailouts are still very high. And they'll likely continue for some time.

But we aren't helpless. Remember, gold tends to perform well in such an environment. The past decade of annual gains for gold seems to be proof of that.

Take a look at how consistently gold has performed since 2001:

Description: http://www.kitco.com/LFgif/au3650nyb.gif

  • 2001: +1.96%
  • 2002: +24.8%
  • 2003: +19.5%
  • 2004: +5.35%
  • 2005: +18.36%
  • 2006: +22.95%
  • 2007: +31.34%
  • 2008: +5.14%
  • 2009: +24.3%
  • 2010: +29.8%
  • 2011: +14.2%

I know of no other major asset that has turned in this kind of performance…ever. This is what a stealth bull market looks like, one that I fully expect will keep powering on.

And the central banks of the world seem happy to keep feeding it.

In fact, none of the fundamentals supporting gold have gone away. Instead, they've only become even more entrenched.

So if you don't own gold yet, what exactly are you waiting for?

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About the Author

Peter Krauth is the Resource Specialist for Money Map Press and has contributed some of the most popular and highly regarded investing articles on Money Morning. Peter is headquartered in resource-rich Canada, but he travels around the world to dig up the very best profit opportunity, whether it's in gold, silver, oil, coal, or even potash.

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  1. Kevin R Coffman | January 20, 2012

    What is the best way to invest in 30Y Mortgage Rates?

  2. Anxiety Attacks And Panic Attacks | January 20, 2012

    That seems like a reasonable prediction for gold in '12. I'm on the fence right now about buying because there doesn't seem to be a clear trend.

  3. Rylee Jaasund | January 20, 2012

    Very well said. I completely agree with your Gold forecast. Even with the statement that $5000.00 gold may be a conservative estimate in the future. Gold and silver have a long way to go, quite exciting!

  4. Thokozani | January 20, 2012

    Its wonderful but want to know how can i buy gold im blank want to open an account if posible what is a next step money morning has all but i want to buy or invest in gold.

  5. Salmon | January 20, 2012

    I am satisfy with your information, but you did not tell me how to make purchase,

  6. Ken | January 20, 2012

    Look at PERTHMINT.COM.AU It is govt guanteed and sells all the precious metals with allocated or unallocated purchases… Very safe and easy to arrange.. cheers…..k

  7. Dale | January 20, 2012

    You can purchase gold via an exchange traded fund. The ticker symbol is GLD.

  8. jrj90620 | January 20, 2012

    Predicting gold to hit $5,000 is not a risky prediction.We have a record of fiat currencies ALWAYS declining,over the long run,so gold will eventually reach $5,000.There is no real top,priced in fiat, for gold,until/unless countries adopt honest,money based,currencies.

  9. Hick | January 20, 2012

    Another view.
    At the end all assets will be worthless.
    Gold, (same as stocks, bonds value jump predictions) is just stupid trick to pull the last cash from public into basicaly useless metal. Anyone who believes that gold will keep value after crash is wrong and anyone who believes that total crash will not happen is double wrong.
    The system created in last 100+ years is dying and narrow elite makes their survival plans.
    Any asset class owner will be looser as there is no other way to write down 50-70 trillion dollars of debts covered with nothing real.
    System needs to wipe out likely about 70-80 trillion dollars of various obligations and that's more than all banks, goverments and savings combined. So, fresh printed cash (even QE 100) doesn't help, it should be extremely strong wave of financial destruction that would force bankrupcies of banks, corporations and countries which will justify replacement of existing currencies with who knows what.
    Physical gold will be bought out by governments (mandatory) at lousy price and gold trading as such will be outlawed.
    It might have more sense to stock real life-supporting stuff than gold.
    God help us that aforesaid is wrong, but it hardly is.

  10. Umarr | January 20, 2012

    Really gold has a really value for money,I can remember when I started mining gold in 2004,it was 3000 per carat multiply by five whist is one frame give 15000 melbas per gram.tokay in this 2012 it is 35000 To 40000 perverse multiplie by five whist is 175000 per frame could you immaculé thé profit Lebel just withing five To eight years let say you where having kilos Of gold.think about it.

  11. Ian | January 20, 2012

    You buy gold through a bullion dealer, & get the physical

  12. John | January 20, 2012

    I have been telling all my friends since 2005 to buy Gold–not many listened! I agree with all what you have written———-but you have not added into the equation the strong possibility of a major WAR breaking out in the Middle East,which could "suck in" USA,England,Russia,China and its unstable poodle North Korea!!! History has way of repeating its self–and we ignore it at our cost–who is rearming and who is reducing their Armed Forces and Defense Budgets?? This happened before WW11,then when War became obvious,the "flight" from Banks and Currency into Gold,Silver,Diamonds, the old age safe storage of wealth!! USA is not now the "safe" engine to supply the Western World,which it profited from and became enormously Power-Full, Rich and a Super Power!! Buy Gold NOW

    PS. I had these thoughts just before the 2nd Gulf War,when Gold was a low $278oz and bought some from my local Bullion dealer it shot up to over $350 in days!!!!

  13. Desmond smith | January 20, 2012

    Let me know as soon as nyou can please,time is all i have to work for me.thanks

  14. Fred Hall | January 20, 2012

    What are the odds that the US Gv't will "call-in" gold
    whenever they like…what-then?

  15. Steve ascott | January 21, 2012

    I buy my gold and silver at bullionvault.com You are actually buying physical metal located in London New York or Zurich. Personally I buy mine in Zurich as there is always the possibility in the
    UK or USA of government compulsory purchase or a ban on holding gold in the future.

    • Derek ros | February 24, 2012

      Nice one Steve but if the s….t hits the fan can you take delivery of the physical gold?

  16. Men Glennie | January 21, 2012

    Long term, the emerging Chinese Yuan with possibly an eye on becoming the dominant currency, and their rapidly increasing Gold purchases should I think offer food for thought on Gold prices in the not too distant future. It will be interesting to watch
    QE3 or even QE4 ??

  17. jonathan | January 22, 2012

    gold will always be the only international currency. however it will be determent how far the world currency values will be compared to the upswing of land values. this will be the true value in dollars in gold etc. these are the only two important commodities .

  18. Brit Hadden | January 22, 2012

    Since 1968 My Father Used To Talk About Gold All The Time Even Before Inflation Took Off In The 70's.
    He Kept Saying If They Don't Balance The Federal Budget And Stop Printing More Money Gold Will Be
    The Only Safe Haven.People Back Then Thought He Was Nutty And Weird.OK,Dad Your Now Being
    Vindicated In Your Grave The Chickens Have Come To Roost!

  19. MICHAEL KANAVEL | January 26, 2012

    What will stop the Government from recalling all gold bullion and paying the owners didley squat?

  20. ugbechie enoch | February 20, 2012

    for now gold having being playing part as function as money ,i can now say that gold is medium exchange for real money . thank you

  21. theofilos papadopoulos | February 27, 2012

    I would like to receive all newsletters by email. thank you

  22. javier fernando romero retes | March 9, 2012

    i have a gold mine i am interes to have i financial line of credit to get the oportunity to sale my products from the mines . i live in mexico please sendme information .

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