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Gold Headed to $200 or $10.000 part II

Gold Headed to $200 or $10.000 part II

By Eric Hommelberg
May 18 2009 4:56PM


Gold remains ultimate form of payment
US debt levels unsustainable – dollar losing status world reserve currency
Gold prices required to counter balance all US public debt held in foreign hands exceed the $10.000 mark
China, Russia calling for new world reserve currency
Gold is sneaking its way towards the $1000 barrier again which is prompting as usual the gold bears to come out swinging declaring the end of the bull market for gold. For newcomers to the gold market it’s very confusing to hear ultra bearish reports from one side calling gold prices to crash, some even predicting gold to crash below the $300 mark while from the other side they’re hearing ultra bullish reports calling for gold prices heading to $5000, some even predicting gold prices to top $10.000. Well, that’s quite a difference and sure enough some analysts will be proven terribly wrong over the next few years.

In my previous piece ‘Gold Heading for $200 or $10.000’ part I wrote a fictive exchange between a staunch gold bull and a newcomer to the gold market being fed with all bearish arguments for gold you can think of. This piece was received very well since it was a real eye-opener especially for newcomers what gold is all about and why it is so much hated by governments today. Readers having missed that piece can read it HERE.

This update is again aimed at newcomers to the gold market and shines a light on all fundamental reasons to own gold.

When I started writing about gold 7 years ago (2002) it was my aim to paint a clear picture about gold’s strong fundamentals pointing to significant higher gold prices the years ahead. I started writing a Gold Drivers Report discussing all critical drivers (declining dollar, increase demand, decline supply, negative real rates, come back in monetary system and record high short positions) that were pointing all to much higher gold prices indeed.

Now after 7 years one could easily argue that the Gold Drivers Report has been a lucky shot indeed since gold did appreciate from $250 to almost $1000 but to set things straight, I’m not writing this piece to prove up my point for the last seven years but to make the case for a record run still ahead of us. Especially during times like these where many gold bears are screaming ‘SELL’ it’s good to know where gold came from, why it did rise from $250 to $1000 in the first place and how the critical drivers that lifted gold are affected these days.

So gold bull over or $5000 gold?

Readers who have followed my work over the years know that I belong in the latter camp which calls for gold prices heading to $5000 or more within a few years. I’ve written extensively for reasons why but I want to emphasize that the primary reason for gold investing should be wealth protection, not to get rich quick. Gold heading to $5000 of course reflects the underlying weakness in our current monetary system so the basic question here is what to trust more. Should you trust your hard earned money to gold which has proven itself as the ultimate protection of wealth for more than 6000 years or should you trust the honest bankers keeping your savings in paper instruments yielding astonishing interests of slightly more than one percent? Of course all guaranteed by our beloved government that favors and guarantees a strong dollar.

The gold bears are opting for the latter since they are basically saying that gold will be losing purchasing power. Saying gold will be losing purchasing power equals saying the dollar will be gaining purchasing power. Saying the dollar will be gaining purchasing power equals saying our monetary system is healthy and functioning well.

This week in part I (point 1,2 and 3) we shine a light on our monetary system well being and is part of an extensive summary "10 fundamental reasons to own gold". Even the staunchest dollar bull will have to admit after reading this piece that all is not well in the financial hemisphere.

10 fundamental reasons to own gold

1. Gold remains ultimate form of payment – No counter party risk
2. Currency debasement – US Dollar losing status as world reserve currency
3. Gold crawling back into the monetary system
4. Negative real rates
5. Falling gold supply vs increased investment demand
6. Gold & Historic averages – gold should be trading above $2300 these days
7. DOW/GOLD ratio points to $5.000+ gold before 2015
8. Gold & US public debt – gold prices required to counter balance all US public debt held in foreign hands exceed the $10.000 mark
9. Large short positions – half of all central bank’s gold has been leased into the market. (about 15.000 tons). Covering these short positions is not possible without catapulting gold prices to unimaginable highs.
10. Gold acting as safe haven in times of rising geopolitical tensions

1. Ultimate form of payment – No counter party risk