Roger Reynolds of the famous
"Shame on you Federal Reserve!!!" newsletter
(sporting three exclamation points for added
emphasis!), notes that gold, "ALWAYS does well as
long as the inflation rate is above the interest
rates."
And in case you ain't noticed,
inflation in consumer prices is almost 300% higher
than even the yield on the 30-year T-bond! And
gold is up over 30% this year! See how it works,
my darling Junior Mogambo Rangers (JMRs)?
And in case you STILL ain't noticed, even
though I just freaking
pointed it out to you,
inflation in consumer prices is so horrific that
it is (when measured the old-fashioned way)
running north of 10%, and the growth in the money
supply is running north of 15%, meaning that
consumer prices will continue to go terrifyingly
up, and up, and up for a long, long time, meaning
that (here I pause to let you come up with the
answer on your own, which you don't because you
can't, because you don't pay attention when I am
talking to you, which I have already spoken to you
about, which you have no doubt already forgotten,
too) the lesson is that gold will continue to go
up and up and up and up for a long time.
How much will it go up? Since you asked, I
will merely quote James Turk of the Freemarket
Gold & Money Report, who fearlessly forecasts
that in 2008, "Gold will finally break into
4-digits, which will be an event that gains
worldwide attention. I think the high in 2008 will
be $1,500, and the low will be $780."
Seeing how excited we are at this glorious
news, he goes on, "Gold will probably end the year
at $1,200-$1,300, generating at least a 50% gain
in 2008. The same monetary problems driving gold
higher for the past six years continue, including:
(1) the dollar will continue to decline,
threatening its 6-decade global monetary
stranglehold as the world's reserve currency, (2)
inflation will worsen as the prices of commodities
as well as other goods and services rise, (3) the
federal government budget deficit will grow,
further debasing the dollar, and (4) global trade
imbalances will continue to create huge pools of
hot money looking for a safe home, much of which
will end up in gold."
Now, for those who
ponder the timeless riddle of why all of the
people in history always rushed to gold in
economic turmoil, and who turn in desperation to
the Loudmouth Mogambo Know-It-All (LMKIA) to ask
me why they do it, I tell you: "I don't know. They
just do. Go away!"
But perhaps a part of
the answer may be gleaned when he goes on to say,
"Add to the above monetary problems a new worry -
counterparty risk. This risk was highlighted by
the bank-run at Northern Rock, and the depositor
withdrawals presently underway in some
institutional money-market funds in the US. Funds
and more financial institutions will collapse in
2008, further highlighting this growing
counter-party risk. Gold will benefit from this
turmoil because it is the only money without
counterparty risk - its value is not based on the
promise of some financial institution," and that,
"This attribute of gold will become more widely
recognized in 2008, significantly increasing
worldwide demand for gold."
And as for
silver? I'm glad you asked! He thinks, "Silver
will clear $30 in 2008, as the (gold-silver) ratio
falls below 40. A $1,200 gold price and 40-to-1
ratio puts the price of silver at $30. Silver is
the best play for 2008, but silver is never a
smooth ride."
And if you think that silver
could go to its rough 15-to-1 long-term ratio to
gold, then a $1,200 per ounce gold price would
mean $80 per ounce silver! Wow! The stuff is
selling for 15 bucks right now!
And for
those holding gold mining stocks, too, the news is
just as good or better, as he figures that "The
XAU Index will nearly double, closing over 300 at
some point during the year." Double!
Then
he started getting into that technical analysis
stuff, which is over my head, so I started to
leave, maybe grab a burger. But I was halted
mid-stride when he said that "the technicals are
fascinatingly bullish", and that the long-term
silver chart has shown that "silver continues to
trade within its long-term accumulation pattern"
which it has "been forming for more than two
decades". A two-decade accumulation period? Wow!
Who the hell ARE these long-term thinkers?
He doesn't want to get stuck in one of my
wild conspiracy theories, and to change the
subject by waving a shiny object in front of my
eyes, he says that one highly unusual thing is
silver's chart pattern of an "upward pointing
flag", which he says is significant because
"Upward pointing flags are rare. They illustrate
unusual strength. In effect, there is so much
demand for silver, every dip is bought. Buyers
(particularly the shorts) therefore get anxious,
and don't wait for a price retracement. They just
keep buying, which describes what's happening.
Silver is being accumulated."
I was hoping
to make some sense of it, maybe make a few bucks
on it, but since I am clueless and stupid, it
promises to be a long night of research and work.
Fortunately, I was saved from the prospect of
actual labor when he volunteered that "2008 will
be the 'Year of Silver'. Look for silver to
outshine gold in 2008." Wow! Just what I wanted to
hear!
You, too, I'll bet!
Richard Daughty is general
partner and COO for Smith Consultant Group,
serving the financial and medical communities, and
the editor of The Mogambo Guru economic newsletter
- an avocational exercise to heap disrespect on
those who desperately deserve
it.
Republished with permission from The Daily Reckoning.
Copyright 2007, The Daily
Reckoning.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
