Gold Train Is Still On Track - Heading for $2000?

With gold recently trading below $800 per ounce on continued strength for the greenback, the bullion bulls are making it clear how undersold they think the metal is. Nonetheless, some admit that gold remains vulnerable and prices need to be sustained above $800 for a few days for the technical situation to improve. Then it can try to rebuild support at key levels between $800 and $900.

Meanwhile, committed buyers also need to return before we’ll see a sustainable advance, according to Jeffrey Nichols, managing director at American Precious Metals Advisors. He points to the impact of the credit crunch, which has reduced liquidity available to precious metals traders and speculators as the source of volatility in both directions.

But the economist says seasonal factors like demand from Asia will soon turn positive and long-term price prospects “remain as bright as ever.”

“The schedule may have been set back a few months, but the train is still on track,” Mr. Nichols said, reiterating his forecast that gold will climb above $1000 per ounce either later in 2008 or early in 2009.

He thinks prices could even climb to $1500 or $2000 in the next few years given the right combination of economic and geopolitical events. But this is hardly an audacious forecast, he said, given that gold’s previous high of  $875 in January 1980 is equivalent to roughly  $2300 today when adjusted for inflation.

“We believe the market will be supported by a deteriorating economic situation in tandem with positive supply-demand fundamentals,” Mr. Nichols said, adding that rising wealth in developing nations will more than compensate for any declines from the top industrial nations.

As for investment and hedge demand, he said they will trend higher as a result of monetary policy and global inflation. And mine output is expected to be slow to respond to higher prices along with deteriorating output in South Africa.

“With economic activity slowing and the financial sector still vulnerable to seizing up like an engine without oil, the central banks have no choice but to pursue reflationary monetary policies that will continue to fuel rising prices for gold (and most everything else) for sometime to come,” he added.

Comments

[JBP:]

8.19.2008
Latest Jim Rogers Interview,

During a 40-minute interview during a wealth-management conference in this West Coast Canadian city last month, Rogers said that:

• U.S. Federal Reserve Chairman Ben S. Bernanke should “resign” for the bailout deals he’s handed out as he’s tried to battle this credit crisis.
• That the U.S. national debt – the roughly $5 trillion held by the public– essentially doubled in the course of a single weekend because of the Fed-led credit crisis bailout deals.
• That U.S. consumers and investors can expect much-higher interest rates – noting that if the Fed doesn’t raise borrowing costs, market forces will make that happen.
• And that the average American has no idea just how bad this financial crisis is going to get.
“The next shock is going to be bigger and bigger, still,” Rogers said. “The shocks keep getting bigger because we keep propping things up … [and] bailing everyone out.”



Keith Fitz-Gerald (Q): Looks like the financial train wreck we talked about earlier this year is happening.

Jim Rogers: There was a train wreck, yes. Two or three – more than one, as you know. [U.S. Federal Reserve Chairman Ben S.] Bernanke and his boys both came to the rescue. Which is going to cover things up for a while. And then I don’t know how long the rally will last and then we’ll be off to the races again. Whether the rally lasts six days or six weeks, I don’t know. I wish I did know that sort of thing, but I never do.

(Q):What would Chairman Bernanke have to do to “get it right?”

Rogers: Resign.

(Q): Is there anything else that you think he could do that would be correct other than let these things fail?

Rogers: Well, at this stage, it doesn’t seem like he can do it. He could raise interest rates – which he should do, anyway. Somebody should. The market’s going to do it whether he does it or not, eventually.
The problem is that he’s got all that garbage on his balance sheet now. He has $400 billion of questionable assets owing to the feds on his balance sheet. I mean, he could try to reverse that. He could raise interest rates. Yeah, that’s what he could do. That would help. It would cause a shock to the system, but if we don’t have the shock now, the shock’s going to be much worse later on. Every shock, so far, has been worse than the last shock. Bear-Stearns [now part of JP Morgan Chase & Co. (JPM)] was one thing and then it’s Fannie Mae (FNM), you know, and now Freddie Mac (FRE).
The next shock’s going to be even bigger still. So the shocks keep getting bigger because we kept propping things up and this has been going on at least since Long-Term Capital Management. They’ve been bailing everyone out and [former Fed Chairman Alan] Greenspan took interest rates down and then he took them down again after the “dot-com bubble” shock, so I guess Bernanke could try to start reversing some of this stuff.
But he has to not just reverse it – he’d have to increase interest rates a lot to make up for it and that’s not going to solve the problem either, because the basic problems are that America’s got a horrible tax system, it’s got litigation right, left, and center, it’s got horrible education system, you know, and it’s got many, many, many [other] problems that are going to take a while to resolve. If he did at least turn things around – turn some of these policies around – we would have a sharp drop, but at least it would clean out some of the excesses and the system could turn around and start doing better.
But this is academic – he’s not going to do it. But again the best thing for him would be to abolish the Federal Reserve and resign. That’ll be the best solution. Is he going to do that? No, of course not. He still thinks he knows what he’s doing.

(Q): Earlier this year, when we talked in Singapore, you made the observation that the average American still doesn’t know anything’s wrong – that anything’s happening. Is that still the case?

Rogers:Yes.

(Q): What would you tell the “Average Joe” in no-nonsense terms?

Rogers: I would say that for the last 200 years, America’s elected politicians and scoundrels have built up $5 trillion in debt. In the last few weekends, some un-elected officials added another $5 trillion to America’s national debt.
Suddenly we’re on the hook for another $5 trillion. There have been attempts to explain this to the public, about what’s happening with the debt, and with the fact that America’s situation is deteriorating in the world.
I don’t know why it doesn’t sink in. People have other things on their minds, or don’t want to be bothered. Too complicated, or whatever.
I’m sure when the [British Empire] declined there were many people who rang the bell and said: “Guys, we’re making too many mistakes here in the U.K.” And nobody listened until it was too late.
When Spain was in decline, when Rome was in decline, I’m sure there were people who noticed that things were going wrong.

(Q): Many experts don’t agree with – at the very least don’t understand – the Fed’s current strategies. How can our leaders think they’re making the right choices? What do you think?

Rogers: Bernanke is a very-narrow-gauged guy. He’s spent his whole intellectual career studying the printing of money and we have now given him the keys to the printing presses. All he knows how to do is run them.
Bernanke was [on the record as saying] that there is no problem with housing in America. There’s no problem in housing finance. I mean this was like in 2006 or 2005.

(Q): Right.

Rogers: He is the Federal Reserve and the Federal Reserve more than anybody is supposed to be regulating these [financial institutions], so they should have the inside scoop, if nothing else.

(Q): That’s problematic.

Rogers: It’s mind-boggling. Here’s a man who doesn’t understand the market, who doesn’t understand economics – basic economics. His intellectual career’s been spent on the narrow-gauge study of printing money. That’s all he knows.
Yes, he’s got a PhD, which says economics on it, but economics can be one of 200 different narrow fields. And his is printing money, which he’s good at, we know. We’ve learned that he’s ready, willing and able to step in and bail out everybody.
There’s this worry [whenever you have a major financial institution that looks ready to fail] that, “Oh my God, we’re going to go down, and if we go down, the whole system goes down.”
This is nothing new. Whole systems have been taken down before. We’ve had it happen plenty of times.

(Q): History is littered with failed financial institutions.

Rogers: I know. It’s not as though this is the first time it’s ever happened. But since [Chairman Bernanke’s] whole career is about printing money and studying the Depression, he says: “Okay, got to print some more money. Got to save the day.” And, of course, that’s when he gets himself in deeper, because the first time you print it, you prop up Institution X, [but] then you got to worry about institution Y and Z.

(Q): And now we’ve got a dangerous precedent.

Rogers: That’s exactly right. And when the next guy calls him up, he’s going to bail him out, too.

(Q): What do you think [former Fed Chairman] Paul Volcker thinks about all this?

Rogers: Well, Volcker has said it’s certainly beyond the scope of central banking, as he understands central banking.

(Q): That’s pretty darn clear.

Rogers: Volcker’s been very clear – very clear to me, anyway – about what he thinks of it, and Volcker was the last decent American central banker. We’ve had couple in our history: Volcker and William McChesney Martin were two.
You know, McChesney Martin was the guy who said the job of a good central banker was to take away the punchbowl when the party starts getting good. Now [the Fed] – when the party starts getting out of control – pours more moonshine in. McChesney Martin would always pull the bowl away when people started getting a little giggly. Now the party’s out of control.

(Q): This could be the end of the Federal Reserve, which we talked about in Singapore. This would be the third failure – correct?

Rogers: Yes. We had two central banks that disappeared for whatever reason. This one’s going to disappear, too, I say.

(Q): Throughout your career you’ve had a much-fabled ability to spot unique points in history – inflection points, if you will. Points when, as you put it, somebody puts money in the corner at which you then simply pick up.

Rogers: That’s the way to invest, as far as I’m concerned.

(Q): So conceivably, history would show that the highest returns go to those who invest when there’s blood in the streets, even if it’s their own.

Rogers: Right.

(Q): Is there a point in time or something you’re looking for that will signal that the U.S. economy has reached the inflection point in this crisis?

Rogers: Well, yeah, but it’s a long way away. In fact, it may not be in our lifetimes. Of course I covered my shorts – my financial shorts. Not all of them, but most of them last week.
So, if you’re talking about a temporary inflection point, we may have hit it.
If you look back at previous countries that have declined, you almost always see exchange controls – all sorts of controls – before failure. America is already doing some of that. America, for example, wouldn’t let the Chinese buy the oil company, wouldn’t let the [Dubai firm] buy the ports, et cetera.
But I’m really talking about full-fledged, all-out exchange controls. That would certainly be a sign, but usually exchange controls are not the end of the story. Historically, they’re somewhere during the decline. Then the politicians bring in exchange controls and then things get worse from there before they bottom.
Before World War II, Japan’s yen was two to the dollar. After they lost the war, the yen was 500 to the dollar. That’s a collapse. That was also a bottom.
These are not predictions for the U.S., but I’m just saying that things have to usually get pretty, pretty, pretty, pretty bad.
It was similar in the United Kingdom. In 1918, the U.K. was the richest, most powerful country in the world. It had just won the First World War, et cetera. By 1939, it had exchange controls and this is in just one generation. And strict exchange controls. They in fact made it an act of treason for people to use anything except the pound sterling in settling debts.

(Q): Treason? Wow, I didn’t know that.

Rogers: Yes…an act of treason. It used to be that people could use anything they wanted as money. Gold or other metals. Banks would issue their own currencies. Anything. You could even use other people’s currencies.
Things were so bad in the U.K. in the 1930s they made it an act of treason to use anything except sterling and then by ’39 they had full-exchange controls. And then, of course, they had the war and that disaster. It was a disaster before the war. The war just exacerbated the problems. And by the mid-70s, the U.K. was bankrupt. They could not sell long-term government bonds. Remember, this is a country that two generations or three generations before had been the richest most powerful country in the world.
Now the only thing that saved the U.K. was the North Sea oil fields, even though Prime Minister Margaret Thatcher likes to take credit, but Margaret Thatcher has good PR. Margaret Thatcher came into office in 1979 and North Sea oil started flowing. And the U.K. suddenly had a huge balance-of-payment surplus.
You know, even if Mother Teresa had come in [as prime minister] in ’79, or Joseph Stalin, or whomever had come in 1979 – you know, Jimmy Carter, George Bush, whomever – it still would’ve been great.
You give me the largest oil field in the world and I’ll show you a good time, too. That’s what happened.

(Q): What if Thatcher had never come to power?

Rogers: Who knows, because the U.K. was in such disastrous straits when she came in. And that’s why she came to power…because it was such a disaster. I’m sure she would’ve made things better, but short of all that oil, the situation would’ve continued to decline.
So it may not be in our lifetimes that we’ll see the bottom, just given the U.K.’s history, for instance.

(Q): That’s going to be terrifying for individual investors to think about.

Rogers: Yeah. But remember that America had such a magnificent and gigantic position of dominance that deterioration will take time. You know, you don’t just change that in a decade or two. It takes a lot of hard work by a lot of incompetent people to change the situation. The U.K. situation I just explained…that decline was over 40 or 50 years, but they had so much money they could have continued to spiral downward for a long time.
Even Zimbabwe, you know, took 10 or 15 years to really get going into it’s collapse, but Robert Mugabe came into power in 1980 and, as recently as 1995, things still looked good for Zimbabwe. But now, of course, it’s a major disaster.
That’s one of the advantages of Singapore. The place has an astonishing amount of wealth and only 4 million people. So even if it started squandering it in 2008, which they may be, it’s going to take them forever to do so.

(Q): Is there a specific signal that this is “over?”

Rogers: Sure…when our entire U.S. cabinet has Swiss bank accounts. Linked inside bank accounts. When that happens, we’ll know we’re getting close because they’ll do it even after it’s illegal – after America’s put in the exchange controls.

(Q): They’ll move their own money.

Rogers: Yeah, because you look at people like the Israelis and the Argentineans and people who have had exchange controls – the politicians usually figured it out and have taken care of themselves on the side.

(Q): We saw that in South Africa and other countries, for example, as people tried to get their money out.

Rogers: Everybody figures it out, eventually, including the politicians. They say: “You know, others can’t do this, but it’s alright for us.” Those days will come. I guess when all the congressmen have foreign bank accounts, we’ll be at the bottom.
But we’ve got a long way to go, yet.

2008 Aug 19 02:38 PM

[buyitcheap:]

Rogers has it right - the more we try to print our way out of this the weaker the dollar will become and the more valuable gold will be - if for no other reason than to stay in place. Looks like I'm going to take another look at that Swiss Franc ETF.

2008 Aug 19 03:30 PM

[GMiki1:]

Paulson IS leaving.

What pulled down the price of gold? Was it the price of gold bullion itself, or the price of paper gold? I mean, I hear there is a lot of buying of physical gold and silver. The paper markets are knocking down the actual commodity/money. Manipulation perhaps? (I think so.)

2008 Aug 19 05:54 PM

[User 221215:]

can the gold will rise?

2008 Aug 20 08:19 AM

[ussmls7:]

Try buying physical Silver at Spot, you will find a big mark up in cost, the add ons come in all sorts of ways,bullion cost fees,ie, Fees for almost anything you can think of! You can compare Ebays selling Prices are way abouve Spot, but I have Found many try to sell Old US Minted Coins, saying they comand higher Prices,because of FDRs Melted the Coins,which is False! Most was sent to Europe & stored in Vaults, but now many Ebayers & Old US Coin Web Sites will sell BU Coins at way abouve Spot, but to get the Best, you need to know what Coins are Real Collectors Coins & always Get a Coin that has a High Grade above MS 64 from NGC & PCGS,the other Gradeing cos are not relyable. The other thing for Coin buyers is to buy AGEs that have the Stamp of their wieght,1/10,1/4,1/2 & 1 oz, there is S AF Kugers that also has the wieght in ozs. There is great info about this on Goldseek.com.
Also read Ted Butlers thoughts about the Metals take down last week at Silverseek.com, if you are tick off at the unfree markets,he has links to complain to the people that turn there head away,as the Black Boxes attact the PMs in the After Markets.
Rogers is right,the Fed will fail,but they have a End Game in Place, & its playing out as we keep moving along this path of bad Banking Pratices.The IMF,& BIS are already in place,they are in the works on the 3rd part, that will be a part of the Feds End Game! Most Americans think the Federal Reserve is a Part of the US Goverment,but it is a indepent Banking Cartel,that loans our on money to the US Goverment at 6% interest, they have spent our Gold & Silver Bullion Reserves to surpress PMs prices, selling below true market prices at a big loss to Americans, go to GATA.org, Where is Our Gold? GATA was a part of Morgan Standlys out of Court settelment, where they had been chargeing Storage Fees for Silver/Gold Bulllion that was said to be in there Vaults, but upon court orders, a inspection, no Bullion had ever been stored, There reply in court was"This is Normal in the Banking System"! Just as the ETFs,its a paper promise,that there is no way it could or will be able to deliver Physical Metals, Its a SCAM, a well Played out Scam,but some make millions,but others have lost everthing. I was reading 8/19/08s Asisa Trade report of PMs & it was a big stink, that this 1 trader lost a furtune on Carbon Credits Trades, He had no ideal what a Carbon Credit was,but played & lost it all in 1 trade! Now the Senate, after the Election will bring this bill back to the floor, it has been proven to be a form of a forced TAX & also ripe in SCAMS, rakeing in Billions for the likes of Al Gore, & the Tree Huggers Cartel!

2008 Aug 20 12:07 PM

[Alex Stanczyk:]

JBP thanks for posting that article, outstanding.

www.rapidtrends.com/bl.../

2008 Aug 20 01:20 PM

[Sallie:]

USSMLS, you are blaming Gore and Tree Huggers for anything to do with this mess our country is in and you fail to mention Bush and his unending wars, with no taxes on the very very rich. That's where our hard earned money is going. Use some common sense, man.

2008 Aug 20 08:05 PM