Reality Dawning - for Gold

Despite the fact that the governments of the G-7 nations have injected some $3.5 trillion into their financial systems to prevent a meltdown of the world's financial system, stock markets are still reeling. With some stocks down by over 60 percent, many investors already have been through a disastrous erosion of wealth. The declines have not occurred in just a few days as they did in 1929. Rather, Government interventions, regulatory changes and bailouts have drawn out the fall in prices over a long enough time period to make it feel like a slow water torture.

Nonetheless, the reality is that there has been a dramatic fall in the price of stocks, precipitated by a massive sub-prime induced deleveraging and the opening salvos of a credit crunch that will likely be with us for some time. After years of misplaced optimism, market participants are now coming to grips with some rather unpleasant recessionary prospects. So, despite government rescue measures around the world, markets continue to sputter.

Worse still, as America is perceived as the engine of the fading economic order, the looming recession appears increasingly to be both worldwide and potentially severe. Indeed, it looks likely that, if badly handled, the recession could easily slip into a depression, based on a far more highly leveraged base than in the 1930s.

Therefore, the sad conclusion of the current stock market crash is that it appears to be anticipating an economic crash, just as bad as that of the 1930s.

For a moment at least, attention is focused increasingly on economic recession and diverted from the risk of financial panic. Temporarily, this is reducing the upward pressure on the price of gold. At the same time, recessionary influences are pressing the gold price down, like other more conventional commodities. Therefore, gold continues to trend downwards, possibly even towards $600 a fine once.

In addition, as the risk of recession appears to gaining international perspective, the strength of certain non-U.S. dollar currencies, including the Euro are eroding and driving the U.S. dollar upwards. This, in turn, is bringing yet further downward pressure on the U.S. dollar price of gold.

Regardless of which candidate the United States selects, the next President will face the prospect of severe recession and be forced to "spend, spend, spend" in an effort to avoid an international depression. In the meantime, a second tsunami of credit card, auto, personal and business loan defaults is heading for the banking industry.

Investors are sensing the approaching storm. On January 12, 2009, General Motors Automobile Credit Corporation (GMAC) is due to redeem $1 billion worth of bond issues. Just three months from redemption, these GMAC bonds are trading at a massive discount from par. In today's climate, three months can feel like an eternity. It is a finite measure of only a small part of the financial storm ahead.

In the third weekend of November, leaders of the G-20 nations will assemble in Washington for urgent economic talks. There may even be calls for a new Breton Woods to discuss a revised world monetary order. Key will be China's role. It is likely that a major debasement of all currencies will be undertaken to rescue the global economy and with it, the world's politicians. As this proposal gathers momentum, gold is likely to explode in price.

However, with the possible exception of countries like Switzerland, politicians the world over are likely to create international rules designed to preclude the holders of gold from making "windfall profits."

Therefore, holders of gold should renew their efforts to ensure their holdings of gold are as isolated as possible from the long, greedy arm of the law.

Comments

[CLH:]

"gold explode in price" hmmm You must be smoking something very powerful. Gold will continue to go down as it always does during deflation and a strong dollar.

2008 Oct 31 08:20 AM

[ussmls7:]

CHL,while you have some strong dollars,you better protect them ! As the dollars shoots for the stars, it will get bigger & will grow Fat, then when you think its almost ready to land on that star,its wieght & gravity shall put in a free fall straight down to a wortless heap of ink & paper! Gold will be accepted accross any border in exchange for goods & services! Who will want a worthless empty promise that has been broken time after time! CHL,please read "The Upcoming Gold Default",by Jim Willie, a Man that knows Currercies,Bond & Gold ! CHL you might learn something ,other to believe that all is well with the Fed & other Currercies abroad,its your Mine Set that has no room to Challenge your way of thinking that will leave you holding piles of paper promises! CHL,have a good DAY!

2008 Oct 31 10:24 AM

[goldis4ever:]

When compared to other currencies, Gold is actually achieving record highs. It won't be long when the dollar joins the crowd.

2008 Oct 31 10:45 AM

[bowman711:]

At some point, when the some $3.5-trillion of 'new' money thoroughly works it way into the economies of the world, people will realize that those 'dollars' they rushed into for safety are only worth some cents. At that point there should be a rush into the only entities that have held value for thousands of years - gold, and to a lesser extent, silver. The only wildcard is if governments evil enough to destroy the world economy in an effort to concentrate power will be evil enough to confiscate the world's gold without paying what it is worth. If that happens, one might as well be holding acorns or pretty sea shells as either dollars (or Euros, pounds, yaun, yen, etc) or precious metals. Reply |Report abuse

2008 Oct 31 11:41 AM

[MRG:]

"Therefore, holders of gold should renew their efforts to ensure their holdings of gold are as isolated as possible from the long, greedy arm of the law."

What do you suggest?

2008 Oct 31 01:31 PM

[MRG:]

"Therefore, holders of gold should renew their efforts to ensure their holdings of gold are as isolated as possible from the long, greedy arm of the law."

What do you suggest?

2008 Oct 31 01:32 PM

[MRG:]

"Therefore, holders of gold should renew their efforts to ensure their holdings of gold are as isolated as possible from the long, greedy arm of the law."

What do you suggest?

2008 Oct 31 01:34 PM

[nmelendez:]

They'll just cap gold at 200o worldwide while the crisis passes.

2008 Oct 31 06:46 PM

[The Rookie:]

my hypothasis is that comments like the one from CLH, are just to draw out the opposing comments from you (and I) gold bugs. SO here is a question to you, CLH. Why dont you give a rebuttal on ussmits reply? Are you just commenting to hear what has been posted time and again or do you really have some wisdom you would like to share with us? So far you have'nt said anything.

2008 Oct 31 07:40 PM

[EricH:]

Gold price is going to spiral down, down, down, from this point on... Once the system finally goes bust (Q1 2009), "they" will first freeze the super low spot price, 'round up' all the private gold (except for Rothchilds & 'Rockafella Skanks' private collections) and then after 40 years of price fixing you will finally discover what the paper trash price is per ounce of gold.

Some crooks already stold my coins so I'm not concerned anymore... but I'm definetly NOT going to replace my stolen coins.

2008 Oct 31 10:21 PM

[xsuddensam:]

ErichH says:

......"they " will first freeze the super low spot price, 'round up' all the private gold.....


How do " they " freeze the spot price of gold and how will they round it up?

Who is " they "?

Sounds like some kind of conspiracy.

2008 Nov 01 11:03 AM

[EricH:]

xsuddensam - great questions, easy answers... They = the government, how do they freeze the spot price? they delare it illegal for private citizens to own gold, and whatever the spot price at that time is the "frozen" price (price you will be paid when you turn it over to them).

This only has a chance of happening if the US dollar fails. Go study the great depression... they did exactly what I've described to you above. The only twist is that today's trashy dollar isn't backed by gold, in those days it was.

Gold used to be fixed at ~$21/oz when they outlawed it (great depression times)... shortly after outlawing it, and exchanging it for dollars they devalued the dollar by 40%, then a short period of time after that they repriced gold at $35/oz. a double whammy...

You could call it a conspiracy if you want. We have case precident for what I described. I hope this doesn't happen either.

2008 Nov 01 05:48 PM

[OctoberFaith:]

better put in your butterfly spreads both ways guys and girls.

2008 Nov 02 04:37 AM

[OctoberFaith:]

puts and call options left and right.

2008 Nov 02 04:37 AM

[OctoberFaith:]

dollar is strong still sorry.

2008 Nov 02 04:40 AM

[Kunst:]

CLH likes to be the first to comment, then go away. Too bad he doesn't do it in the reverse order. Speaking of reverse, since CLH generally has it backwards, is there a HLC around who can get it right?

2008 Nov 02 09:47 PM

[dr.doolittle:]

great stuff--get back on Kudlow. Obama will keep the Bush tax cuts because the democrats are whores. He will also successfully capture Osama Bin-Laden--bad for the Paki's but great for the market. Euro land is toast--and gold will indeed rise because now that the McCain collapse is over (and the dumbest "Republican" ever is completely destroyed) we can all thank our lucky stars and let the American economy absolutely explode in on orgy of inflation loving growth!

2008 Nov 04 10:30 AM