In a recent interview, Egon Von Greyerz, founder and managing partner of Matterhorn Asset Management, predicted gold reaching levels of $4,000 to $5,000 and silver touching $150 an ounce in the mid-to-long term. He said that in the "next few months, silver should at least double to about $60 by June, with gold around at least $2,500 and possibly a lot higher."
Why such optimism amidst a turbulent market that has many questioning whether gold is at the end of a long bull run?
"I see bubbles, I see bubbles, I see bubbles everywhere," Von Greyerz said. "I see it in stocks. I see it in bonds. I see it in the property market. I see it in the credit market and the derivatives market. I see it in government debt. I see it in central bank debt. I see it in most currencies."
Von Greyerz may be exaggerating, at least in some of the markets.
Although stocks have been rising, in the United States, the property market is just starting to rebound and, in some markets, has yet to do so. The bond market is still plagued by uncertainty and is far from what looks to be a bubble, although bonds are paying far less than would seem prudent compared to the long-term risk of loaning capital.
Not only does Von Greyerz see bubbles in a broad range of sectors, he also sees bubbles as a global problem. "We have it in Europe," he said. "We have it in the US and in Japan."
Bubble may not be the right word, although the end result may be the same. The economies of Europe, the United States and Japan are being propped up to varying degrees by their governments and central banks printing money to increase cash flow within the economic system. In many cases it has far from led to a bubble, at least within the economy, although such policy has certainly pumped up stock prices. At some point, investors will begin to wonder whether the paper money is really worth anything and that is when, whether you call them bubbles or not, the trend may reverse in a major fashion.
Von Greyerz sees the bubbles starting to burst in 2013.
Instead of seeing the bubbles as a threat, however, Von Greyerz said the average investor is caught up in the euphoria, and rather than cutting down on spending, he is actually increasing his debt. With interest rates so low, it is hard to question the tactic of borrowing now - at least to invest, if not to consume.
The average consumer is now paying higher prices for what he buys, but his wages are not making up for that gap. Instead of cutting down on expenses, he is just borrowing more money. U.S. consumer debt increased 6% last year and it is now approaching $3 trillion. Corporate debt is also increasing fast in the United States.
It can be difficult to predict major points in history when economies undergo an enormous shift. 1929 marked one such point. Will the period from 2008 through 2013 mark such an epoch? Von Greyerz thinks so. He said, "2013 will start to see the beginning of the destruction of this world, and that destruction will be of an enormous magnitude as one bubble after another bursts. I can see tens of trillions [of dollars] disappearing from wealth worldwide."
The dichotomy between what appears to be happening in the media and in stocks, and how the real economy is behaving appears to be widening. There is great optimism fueled by the rising stock market and the media, which focuses on every feel-good story within sight. Reality presents a far different picture. Von Greyerz and I believe that there's no reason to be optimistic.
Eurozone GDP for the fourth quarter was down 0.6% against the previous quarter and down 0.9% against the same quarter in 2011. Every country in Europe is down. Germany, the strong country in Europe, was down 0.6%. France was down 0.3%. Italy was down 0.9%. Greece GDP was down 6%.
Again, just like the bubbles, shrinking economies is not just a local problem. Europe is shrinking, but so is the rest of the world. Japan was down 0.4% in the fourth quarter. U.S. GDP was also negative in the fourth quarter.
"What is astonishing is that GDP is declining worldwide despite all of this massive money printing by all of the central banks," Von Greyerz said, "but we know that printing paper money can never save the world economy. But that won't stop banks and governments from printing unlimited amounts of it. As banks and government debt increases, and it's going exponential now, so will the gold price."
Von Greyerz strongly advised, as I do, that for the long term, gold should be bought and held in its physical form to protect against the bubbles. "Gold is the only real and honest money," he said. "Gold is the only way to preserve your wealth in coming years."
Although Von Greyerz is known for his long-term expertise, he said that today offers a very interesting technical picture. His technical analysis is supported by Steve Roy, the Chief Analyst at the Equity Management Academy.
"Technically," Von Greyerz said, "I think gold and silver are likely to turn up next week. Then we'll see a very, very, very strong move up until at least June. Long-term cycles and other cycles point to exactly the same thing." He then discussed a range of long-term cycles from month through 21-year cycles, all pointing to a big breakout by June.
Based on his technical and long-term analyses, he set new predicted goals for gold of $4,000 to $5,000 an ounce, and of $150 an ounce for silver. He said, "in next few months, silver should at least double" to about $60 plus by June, and gold should be around "at least $2,500 and possibly a lot higher."
Rick Rule of Sprott Asset Management and Dave Beling, CEO of Bullfrog Gold Corp, also forecast much higher gold prices. I believe that such figures are well within the realm of possibility given the level of government debt around the world, massive printing of fiat currency and declining GDPs.
Turning to mining shares, which have struggled recently, Von Greyerz mentioned Dehua International Mines Group as looking poised for "a very strong move to the upside," which would dramatically outperform gold over the next 4 to 6 months.
During interviews with Rick Rule and Dave Beling, I have highlighted the favorable time to purchase several small mining company stocks, including Goldfrog and Pershing Gold, among others.
Von Greyerz stressed that the current correction in gold and silver has been, in the long-term view, a very small move. On long-term charts, the current correction is barely noticeable against the strong, long-term move up. He mentioned that the correction is mostly just against the dollar since against the Yen, gold is actually making new highs, and against the Euro gold is not far from the highs.
Such sideways moves in gold can last more than a year, as one did in 2004, and similar moves occurred in 2006-7 and then 2007-8 before a major move up. It is not abnormal, Von Greyerz said, for a bull market to recharge and come back with more energy. He stressed that the "longer the correction lasts, the stronger it comes out on the upside."
The technical analysis by our experts at the Equity Management Academy, and interviews with Dave Beling and Rich Rule support Von Greyerz's forecast of a significant upturn in gold and silver. If such analysis is correct, that move could start anytime.
Additional disclosure: The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed herein constitutes a solicitation of the purchase or sale of any futures or options contracts.