Golden horizon
By Mogambo Guru

I was burping with indigestion, having consumed an entire pizza in a fabulous feeding-frenzy while having the experience completely spoiled by having to listen to the old lady and kids complaining about what a selfish, conceited, greedy pig I am because I won't share with them, like this is big news or something.

I needed the strength to tell you what was happening, and that is that Jabba the Hutt dressed Princess Leia up in this silky little slave-girl harem outfit and ... oops! Sorry!

Well, thinking about Princess Leia dressed up in that gauzy little-bit-of-nothing outfit in a state of total submissiveness has really reduced my interest in most everything else, so instead of telling you what really, REALLY happened, we will turn to gold and silver, because if there is one thing that I have learned while on

 
this planet you call Earth, it is that to get a hot chick like that to say, "Take me and ravish me, you Hot Mogambo Stud (HMS)!", you can't use force like old Jabba there. And that means willful cooperation, and that means you are going to need some serious, serious money.

And since the American dollar loses so much buying power, then I am talking about gold.

And speaking of gold, which has had a little drop in price in the past month or so, Junior Mogambo Ranger (JMR) Nathan F writes, "As an auction site, eBay often acts as an observable measuring stick for basic supply and demand economics."

Naturally, I think to myself, "Well, an auction is the nature of the free market, dude! It is the old supply/demand dynamic!" Imagine my surprise when he continued that it was "Obvious, I suppose."

Naturally, I figure that this guy can read my mind! Immediately, I try and stop thinking about Princess Leia in that little slave-girl outfit of hers, and the million or so embarrassing things I would do with her, so that he doesn't get the wrong idea about me, which I admit is actually the RIGHT idea about me, but I think that the whole thing has been adequately covered in police reports, psychiatrist files, and the local newspaper.

JMR Nathan goes on, "What I find interesting is that during this downturn in spot prices, there has been little or no change in the Final Bid prices being taken by sellers on eBay for bullion, coins and related silver or gold items." Hmmm!

Well, maybe the answer lies in an article at DenverPost.com, saying, "Gold prices must rise to as much as US$1,500 an ounce to ensure that metal producers survive as costs continue increasing, said John Hathaway, a fund manager at Tocqueville Asset Management LP."

Hathaway says that "Inflation has pushed the average cash cost of production to about $700 an ounce, before companies factor in taxes and royalties. The metal needs to trade between $1,000 and $1,500 an ounce to compensate."

And that is just the standstill forecast based on costs of production! As for the price of gold including increased demand, Paul van Eeden at paulvaneeden.com is much more sanguine than that, and says, "Five years ago I was certain that the gold price would double, or triple, from its then $300 an ounce price level. I bet large and it paid off. I am now becoming equally convinced that US interest rates are going to soar and I am going to bet big again. US dollar inflation, as measured by M3, is currently more than 17% per year, the highest level of inflation since M3 was created in 1959."

We all know that creating all that excess money and credit will produce inflation, but how high will inflation in consumer prices, and interest rates, go? Well, Eeden figures that "Other than now, the period of highest inflation was July 1971 when M3 increased by 16.12% year-over-year. It took 15% interest rates to quell the fire of 11% average annual inflation rates. Today we have a 17% inflation rate and a 10-year interest rate of only 3.6%."

And what will be the high price of gold? Easy! Since the dollar is an abused fiat currency, and since all the thousands of fiat currencies in history went to zero value, the ultimate price of gold, in dollars, is infinity!

The only question is how long before it happens? Another easy one! Sooner than you think! Hahaha! We're freaking doomed!

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 2008, The Daily Reckoning.)