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I was scanning the news wires in search of a particular item late last week when a story caught my eye: It seems that Newmont Mining Corp. (NYSE: NEM), the world's No.2 gold producer, believes that the burgeoning demand from Asia's newly minted middle class will send the yellow metal up to $1,600 this year and even higher in 2011.
The Newmont story reminded me of another news item that I'd read just days before - a news-service poll of analysts that said that the current Wall Street consensus was for gold prices to reach $1,700 an ounce in 2015.
What a joke.
You see, just a few months back, when gold and silver prices seemed like they were jumping every day, Wall Street and the other Big Boys were blitzing us with messages explaining why we "had to" buy gold.
You heard it on the radio. You read it online. You saw it on the nightly news. We were even inundated with those late-night infomercials or "junk-mail" packets that detailed the benefits of those funky "collector coins" (including some that were "individually hand painted," no less!).
Gold was going to $2,500, $5,000 or even $10,000. And only fools weren't in gold - or so they claimed.
But when gold prices stopped running, so did Wall Street's aggressive forecasts. In fact, we've basically seen an about-face - as if the Big Boys are now low-balling their gold price forecasts.
Don't get suckered.
If you buy what Wall Street is selling right now, you'll lose in a big way - twice. You'll miss out on the major profits that will come when gold prices run up to their inevitable new highs. And - perhaps even worse - you'll get left behind and find your buying power eroded in a big way when the inevitable harsh inflationary pressures ultimately take hold.
The Truth About the U.S. Economy - and Inflation
Here at Money Morning, we deal in facts and analysis, not empty promises and hype. We bring you the news that explains what's happening and why, and that tells you what our experts believe will occur - and then we show you how to profit from the opportunities and protect yourselves from the dangers. And - thanks to our worldwide group of experts, many of whom are Wall Street veterans themselves - we can bring you insights no one else can.
So what do we see for inflation, one of the most-complicated, most-debated and most-controversial topics before us today?
It's going to get worse - much worse.
The most-recent figures initially appeared to be benign - because oil prices fell - but if you look below the surface it's clear that inflation has really taken hold: For instance, producer prices were up 7.2% on the previous year. Another new report that came out late last week said that a key measure of consumer-price inflation posted its biggest increase in nearly three years in May.
But there's a second part to the inflationary saga. You see, another report said that a gauge of regional factory activity actually contracted in June.
In other words, inflation is accelerating - even as the U.S. economy brakes toward a double-dip downturn.
That's not just a recipe for "stagflation" - the odious combination of rising prices and falling output that we haven't seen since the 1970s - it's a surefire catalyst for higher gold prices.
As I'm sure this week's meeting of central bank policymakers will underscore, U.S. Federal Reserve Chairman Ben S. Bernanke won't be raising rates anytime soon. Because the gap between interest rates and inflation will continue to get larger, U.S. monetary policy will become more and more inflationary.
With nothing to arrest them, inflationary pressures are going to get a lot worse - and pretty quickly, too.
The inflationary spike - and the decline in the U.S. dollar that accompanies an economic slowdown - will prompt investors to scurry (and eventually stampede) into gold.
In short, we're watching the clouds gather into a "perfect storm" that will cause gold prices to soar.
That's why Wall Street's forecasts for $1,600 or $1,700 gold are a joke. Gold prices will head much higher than that.
Spot gold traded at nearly $1,534 an ounce yesterday (Monday) -not much below the all-time record of $1,575.79 that was hit in early May. So we're essentially already at $1,600 - with inflation that's accelerating and an economy that's doing just the opposite.
That gives us two important questions to answer:
- Where are gold prices really headed?
- And why isn't Wall Street pounding the table - telling every American investor to buy gold?
The second of those two questions is so easy to answer that I'm going to tackle it first.
The Truth About Wall Street's Gold Price Forecasts
If there's one thing that I've learned during my three decades in journalism, it's that Wall Street loves Main Street.
But not in the way that you think.
When I say that Wall Street loves us, it's because it uses us - and not that it's looking out for our best interests. Wall Street manipulates Main Street - and does so in a way that makes money for its very best (read that to mean super-rich) clients and maximizes its own corporate profits.
It's known as the "Greater Fools" strategy, and here's how it works. Wall Street identifies a great potential investment, and then feeds it to its wealthiest clients. Then it whips up a bullish campaign that brings in the mainstream media and piques the interest of Main Street investors - the "marginal" investors who transform a regular bull market into a full-blown bubble.
Those investors, who aren't everyday players, are the difference-makers. They move in - slowly at first, and then in growing numbers - and ignite the market mania that drives prices skyward. This boosts the profits of Wall Street's wealthy clients and maximizes its own corporate profits.
The wealthy (first-in) clients cash out at maximum profit, and the Main Street investors get left holding the bag when there's no marginal (new) investors to bring in and prices collapse.
If you think about it, that's just what happened with the dotcom bubble - and with virtually every other market frenzy that you can identify.
So right now, there's no incentive for Wall Street to issue aggressive gold price forecasts that would let Main Street investors know that the so-called "yellow metal" is going to get hot. Gold isn't hot enough for the Wall Street marketing juggernaut to work its magic - which means it isn't worth messing with right now.
But when a clear trend emerges, mark my words - you'll once again be reading aggressive Wall Street predictions about how gold is going to soar. Investors will push and shove and elbow their way in, and gold prices will head for the moon.
Unfortunately, the investors who wait - and take their cue from Wall Street - are going to miss one heck of a profit opportunity.
Let me show you what I mean.
Where Gold Prices are Really Headed
Late last week, when I decided to write this note to you, I figured it would be a good time to schedule one of my periodic private briefings with Peter Krauth, our resident global-resources expert. I told him what I'd read, and then walked through my reasoning.
"It seems to me," I told him, "that these forecasts are all ridiculously low."
After he finished chuckling over Wall Street's latest demonstration of chutzpah, Peter said that my thinking was right on target - and warned that those crazy forecasts weren't to be trusted.
"In fact," Krauth said, "I'd say that we're actually looking at $1,900 for 2011, $2,500 for 2012, and $5,000 by 2015."
When Krauth talks, it pays to listen. Back in December 2009, for instance, in the Money Morning report "Why Gold Will be the ‘Greatest Trade Ever'," Krauth told readers to ignore a month-long plunge that sent gold prices from $1,220 an ounce to about $1,080 an ounce - because the metal would rebound and zoom to new records.
He even got it right with silver. In September, when the "other" precious metal was trading at about $19 an ounce, it was Krauth who rated silver as a "Strong Buy" in his special report "How to Buy Silver" - and then watched as the metal soared nearly 170% in the eight months that followed (it peaked at roughly $50 an ounce).
So what's the catalyst behind his latest predictions?
Inflation's a given - and I think that our earlier discussion of that topic pretty much proves that. There are also the other obvious candidates - including the lousy economy and the milquetoast U.S. dollar.
Then there's China and India.
India continues to be the world's largest consumer of gold. And as Money Morning just reported in a report we published on gold coins, the demand for gold continues to escalate - in almost every income class.
Back in April, for instance, the State Bank of Travancore announced that a program to sell gold coins through five of its branches would be expanded to 60 branches in a single month's time. But an executive for a bullion dealer in India probably summed it up best when he said, referring to India's fifth-largest city, that "in Chennai, even the poor buy [some] gold."
When it comes to any discussion of investing, China has really fallen off most folks' radar screens. And not without reason, as the Asian giant's many problems continue to come to light.
But dismissing China as a catalyst - with regards to any investment - would be a grave mistake. And if you're talking about the future direction of gold prices, ignoring China would be especially egregious, Krauth explained.
China is not only the top producer of gold on the planet, but it's second only to India in terms of world gold consumption.
"According to the World Gold Council, Chinese investment demand was up a staggering 71% in 2010 over 2009, and that pace followed through into the first quarter of this year," Krauth told me. "The People's Bank of China - China's central bank - has only 1.6% of its assets in gold, and it's no secret it wants that percentage to reach much higher levels. It's no wonder all the gold produced in China stays in China."
Krauth also noted that the World Gold Council predicted Chinese gold demand was set to double within the next 10 years.
Said Krauth: "Higher gold prices - much higher prices - are all but guaranteed. Wall Street's gold price forecasts are way off the mark - and much, much too low."
So it should be no surprise when gold reaches $2,500 in a year - and as much as $5,000 just a few years after that.
Those are what I call real gold price forecasts.
On that topic, here's what Peter had to say.]
News and Related Story Links:
- Reuters:
Newmont sees gold above $1,600 in 2012 on Asia demand. - Reuters:
Data shows troubling mix of weakness, inflation. - Money Morning Special Report:
How to Buy Silver. - About.com:
India to remain the World's Largest Consumer of Gold in 2011. - Money Morning:
What You Need to Know Before Buying Gold Coins. - The Economic Times:
High Gold Demand Pushes Up Coin Sales. - World Gold Council:
Official Website.
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning at Money Map Press.
Krauth probably chuckled because he was conning you. Gold is finished as a sensible investment.
I Love Gold And Silver.. It aint going away.. the only way is up… But they keep talking it down.. so they can get more for themselves..
Don't look at the future of gold. Look at what's happening to the dollar,the Euro,the yen, etc..As fiat ,paper money 's, worth evaporates the value of gold will soar.
Greece, and the other failing countries are making gold the only trustworthy money.With the US economy failing; the safe haven ,wealth protector, will be gold and not the American dollar.
The price of gold will be higher than we can imagine.I can't even guess.
So, is it best to grab the minors or the ore? What about oil or oil producers as an inflation hedge? Ooops, what about agriculture (DBA) if inflation raises prices, what better inflation to follow than the cost of food? Food I can eat, gold is just shiney
On the night of Labor Day 1976, not long after Bob McNamara & the Rockefellers had hammered the gold price down to +/-$100 and a day after The New York Times ad published an item saying that gold was trapped in a 100-125 trading range for the foreseeable future, an obscure TV commentator (Raoul Engel) on an obscure Toronto network (Global) opened his evening broadcast with the following two sentences. "The Swiss have decided that Jimmy Carter is going to win the US election. The price of gold in Zurich today went from 103 to 108 US dollars…" Engel went on to forecast the next four years of stagflation and the vertiginous rise in the price of gold that lay ahead. He signed off by saying that we may hear this again, "but don't forget where you heard it first."
Consensus forecasts are great for "normal" times, with low unemployment, decently maintained infrastructure and properly focused government expenditure. But now all of these conditions (as an antique dealer once said to me) are like "real antiques — a thing of the past."
The consensus is all but guaranteed to be wrong. Carter came to the presidency in the midst of a crisis of public confidence in the political process, a crisis he did little to resolve. The lack of resolution was great for the price of gold. We are in a similar crisis today, and the USA's two major parties are no more ready to cope with it than the Greeks are. Look for a replay.
I'm with Peter Krauth: 50 ounces or so of pure gold coins stashed away in the Beautyrest & Posturepedic Bank will be a great aid to a restful sleep.
Bob Cluett, Wellington, Ontario
An excellent report and much appreciated. The damage caused by the the introduction of paper currency since it's inception around 1913 is incalcalcuilable and why we the people have allowed these human leaches to feed of us whilst controling us defies belief. This is one of my reasons for returning these comments to say thank you one and all for your time and more importantly your dilligence and commitment. We Need You. THANKS
Barrie Owen UK citizen
I am inclined to agree with Mr. Krauth about the forecasts being low. The Wiemar Republic only took a few years to destroy their economy, and they had to print money. Electronic credits should speed this up markedly. "To err is human, to really screw things up you need a computer".
Regards,
JN
right on
As longf as the US is not seriously attacking the deficit and does not pay back the loans to investors, all commodities e.g. Gold, Silver, Copper and others will increase in price. Inflation will eventually be the biggest problem. it is in the interest of the government to have high inflation as this would make it possible to pay the investors back with discounted money.
Bill – Grabbing MINORS will get you arrested, whereas grabbing shares if the MINERS of the SHINY stuff will get you wealthier.
Hi folks:
Thanks for all the comments. It was very gratifying to receive all these responses – positive and constructive. Since you all took the time to offer your thoughts, I felt that I had a duty to respond in kind.
I've tried to address most of the comments that were posted early today (Tuesday).
Barrie, thanks for the kind words. Other news organizations provide the news – but fail to provide the "what-it-means" context that transforms random data into actionable insights. That's why we see ourselves as a "news service." We bring our readers that added value. In fact, one of our main mandates is to provide our readers with the kind of analysis and context they need to maximize their personal profits. Comments like yours tell us that – on this story, at least – we've achieved that goal.
Howard, I couldn't agree more. The picture you paint is a grim one – but it's pretty much what we see, too. And it underscores, yet again, why it's crucial for us, as investors, to take steps to protect ourselves. And one of those steps involves gold.
Bob, you clearly put a lot of time and thought into your comments. I know that the readers will appreciate your having taken the time to share them with all of us. I would urge readers to take a look for themselves.
I have to say that I thought your observation that so many of the rules and yardsticks investors use to value assets and assess market situations were designed for "normal" times – and that many of them go right out the window during periods of market or economic extremes (like this one). Terrific observation.
Furthermore, as you correctly point out, being able to rest at night is crucial. Investors who lack that feeling of security are usually the ones who panic, make rash decisions, and get away from their long-term investing game plan. They typically incur horrid losses as a result of such strategic miscues … and then – in their bid to "make up" ground – they make additional poor decisions that create still more losses … leaving them even further behind. So that "being able to sleep at night" is not just some cliché investment concept – it should be a key strategic objective that's central to every investor's long-term plan.
Bill, you and some other readers really got to the bottom line in asking, in effect: "This is great information. Now that we have this insight, how can we profit from it?" I have two answers for you and the others that posed this same question. First and foremost Peter Krauth, Money Morning's resident natural-resources guru, addresses some of these very questions in a new report on his advisory service, The Global Resource Alert. If you're interested, check it out by clicking here. Second, we've covered some of these topics in past stories published in Money Morning. But you make a great point, and offered some great story-topic suggestions. It's been some time since we covered some of these topics, so I'm going to get our writers working on some of these. Watch for them over the next few weeks.
Jim – I've always loved that computer maxim … so true, so true. As for your comparison of the present global financial situation to Germany's Weimar meltdown … well done. We've done some stories along the very same lines, including:
And last, but not least … Martin, thanks for taking the time to offer a dissenting opinion. And I truly mean that. I've been the editor of Money Morning since Day One – in fact, I was recruited to help design and develop this as a free e-letter and global-investing news service, and worked directly with Publisher Mike Ward to transform the vision into reality.
One thing that I've learned in the four years since then is that Money Morning is blessed with one of the shrewdest and best-informed readerships of any business publication you'll find. So when we publish an article or report on a "hot" or controversial topic, we expect to see comments, discussions and even debates on all sides of the issue at hand. Dissenting comments are part of that equation. So thanks for your contribution.
That being said, we disagree with your assessment. The institutional view here at Money Morning is that inflation – major inflation – is fait accompli. Gold is one way to protect yourself and benefit. In fact, it's a good way. But it's fair to say that it's not the only way. In fact, check back later this week – we are preparing a piece that provides some interesting thoughts on the whole topic of inflation.
Thanks again to all of you for writing. Keep checking back with us and keep reading.
If you have any other thoughts that you want to share – or would like to suggest some ideas for possible articles or reports – please feel free to write to us at mailbag@moneymappress.com
Thanks!
Very respectfully yours;
William Patalon III
Executive Editor
Money Morning
Martin is a Wall Street insider … or a banker … or a politician. LOL
There's no way gold is finished. Sure as the sun rises, gold will continue to do so as well.
Is there a stock or stocks to buy to take advantage of increasing gold prices like Slw rather than buying gold coins?
Hi Larry:
Peter Krauth is working up a piece right now. We hope to publish it either late this week or early next week.
William Patalon III
Executive Editor
Money Morning
William,
I always look forward to your newsletter.I am by no means a big investor.In fact,I have only been investing in gold and silver since August,2009.But,I did manage to figure out things for myself,and have seen significant appreciation,even with the obvious fraud and price suppression schemes of Wall Street.I then discovered shrewd minds like you,Max Keiser,Peter Schiff,Mike Maloney,Gerald Celente,Eric Sprott et al.I now shun the mainstream media and the spin of the banking cabal.When you arm yourself with knowledge,it becomes easy to filter out the static of the propaganda machine.
I get dismissed by most people when I BEG them to invest in gold and silver.Oh well.Some(God Bless them) have listened and now come to me for advice or knowledge when events like the COMEX manipulation occur.
It is very troubling to me that Americans are so ignorant about economics.How the sheeple can continue to have total faith in a piece of paper being printed into oblivion and then dismiss REAL MONEY that has existed for thousands of years is beyond me.Absolutely nothing has changed since the crash of 2008.We are heading for a hyperinflationary event followed by a deflationary depression.This is all but baked into the cake.And,I,for one,am grateful that I will have several ounces of gold and a few hundred ounces of silver to at least protect me a little.What Goldman Sachs and JPMorgan have done to the global banking system is nothing less than treason.
I keep a ledger of all of my metal purchases. When silver took the dump this year, I "lost" 30% of my metal portfolio. BUT! I WAS STILL IN THE BLACK, ON MY BOTTOM LINE.
My metal is mostly silver, with small portions of gold and platiunum. I am not an "emotional" investor (I am also not a "collector"), so the money I have invested into metals is money that I have not missed over the years.
My goal is to live off of 150 troy pounds of silver, to suppliment my SS and annuties that I have, when I finally retire. As I sell off my silver, I will do so to purchase gold, and then, I will slowly sell off all of my earnings (money I did not put in the pot), until I have nothing but earnings. Meaning, my money in my pot will be made up of all of my earnings, and not a penny of it will actually be any of my money! Then, I will sell off as needed, and leave the rest for the kiddies.
When I was 20 something (I am in my 60's) I received a 25 cent per hour pay raise. My co-workers were all talking about their raises, too, and asked what I was going to do with my newly received money. I told them I was going to save it. (Nobody knows I have metals, except my attorney and my insurance company, that insures the contents (metals) of my safety deposit BOXES.
You would have thought I defamed the Lord! You would not believe the avalanche of verbal abuse I got from my co-workers (for months on-end) in response to my comment. (I don't tell anybody what I do, now, and am only sharing this information with you, for obvious reasons). "YOU ARE AN IDIOT!" (I also believe that I lost out on other pay-raises and even promotions, because of my obvious stupidity and lack of "financial savey" etc. (My degrees, now, are in business administration and management).
I was told to spend it now, because lettuce will cost $25.00 per head when I am 65 (which of course, it hasn't); and that only a fool would actually "save" his money, "BECAUSE THE GOVERNMENT WILL ALWAYS TAKE CARE OF YOU AND THAT THEY WILL NEVER PUT THE SCREW TO THE AMERICAN PEOPLE; and, that they will always "take care" of you!" And, other such comments.
Really!? HaHa! I was diagnosed with leukemia 3 years ago, and have been in remission for 3 years now. It took my doctors almost 2.5 years to figure out what was wrong with me. I haven't worked in almost 6 years and am not eligible for any handouts from the government. Not even regular disability! Why? I am/was 3 years short on work credits. Look into it, folks. Clinton changed the law. After working for 40 years, only the last 10 count for disability purposes; not the first 10 years of your work life. So much for them taking care of me.
I lost a lot these last 6 years, BUT I am not homeless or living on the street, because I have medical insurance, and BECAUSE I INVESTED MY MONEY CORRECTLY!
So, you young-un's can talk the talk all you want. The government will NOT take care of you. (Haven't you figured it out, yet?)
But, 150 troy pounds of metals, will!
Does the average American even have 6 months of income in te bank, should they get sick or lose their job. Nope.
Now you know why I am an idiot, and why I am also divorced. Saving your money is for idiots.
I AM SO PROUD TO BE AN IDIOT!
Dear Scott:
Thanks for the insightful and well-thought-out reply, and for the kind words. Maybe others dismiss what you're saying, but we sure don't. You're definitely singing out of the same hymnal as Money Morning.
I hope we'll hear more from you going forward.
If you have any suggestions of topics you think we should cover, drop us a line at mailbag@moneymappress.com.
In the meantime, keep fighting the good fight and enjoy your summer.
Respectfully yours;
William Patalon III
Executive Editor
Money Morning
I don't invest in stocks, but have saved several pieces of gold jewelery. In hard times how do I use this instead of buying more gold coins. Also have some silver saved. Thanks, love your newsletters.
your insights on inflation and staggering gold price help a lot of ordinary folks to be wary of what they are up to in future.
Gold/Silver coins are great until they make it illegal to buy/sell OR tax it so heavily the gains evaporate. I just don't think the govt. is going to allow ordinary folks to get rich off of bullion. Sure there's going to be a black mkt,, but the penalties for trading in that wiil be high…
You'll wake up one morning and their will be a new revalued currency. The old dollar will have to be converted, the old dollars remaining off-shore will have to come home for the conversion and tax. The Chinese will be screwed,
Hi I'm Adán Salgado, from Mexico city. Well, I have been reading the article of Mr. William Patalon and all the comments. And what I have to say is that according to a very good friend of mine that is from your country, the problem is that mainstream US citizen is no longer a hard worker like it used to be 40, 50 years ago. My friend told me that because most people just try to live off public welfare, your country is no longer as industrious as it was before. So if you don't produce the same as before, then no real richness is gotten. I mean, if a country depends upon others to get the stuff it needs, well, the consequences are that is going to be dependent of foreign production, but how is going to pay for that, what is going to offer? I have read in other publications about the "exporting" trend of not only blue collar but white collar jobs, so you are getting rid of your corporations or rather those corporations are getting rid of your work and intellectual force. So, when nothing is there to be offered, well, it's again like the ancient times, that precious metals or stones were the safest way to keep someone richness. But when gold or silver or platinum for that matter got more and more scarce, what is going to be next!? Remember this is not the 1800's, when the gold fever in California with its vast amounts of rich gold mines let all that happen. Now gold is more scarce and difficult to get. A lot of the corporations that are exploiting right now land mines have incurred in non ecological and very polluting methods to get just one ounce of gold per ton of debris, so I respect your point of view, but I would say that in the near future, when there is not enough food for feed these growing humanity, gold is not going to do the job. I think we all humans as a whole have to go back to work on the essentials of life and not waste our time making bombs or weapons that are so useless and so expensive. We have to work the land again, as my friend says, respect nature and have in mind that even in this Internet era, when all is done within seconds, even a gold transaction, we all still feed ourselves from the good land, we drink water to calm our thirst and we breath from the air that is still produced by Mother Nature. So, I think that the only way to overcome the present global economical crises is be less materialistic and more naturalistic. Thanks for your kind attention.