Be sure and check out Bill Murphy’s comments (LeMetropole Café) today. He always has great things to say and his newsletter is one you should not miss. It is worth the price of admission many times over. Also, there is a wonderful essay by Sprott Global Resources that you should take the time to read here today. Both of these articles are outstanding.
Let’s see how gold is doing in four of the world’s major currencies. I have presented this chart before, but it’s time to review it again. Gold’s rise is a direct result of the central banks inflating (debasing) their currencies. Since gold is the only financial asset with no liabilities against it, gold has become very attractive to central banks and savvy investors, especially in India, China and Russia. The following chart prices gold in Dollars (Gold), euros (Blue), Japanese Yen (Red) and Swiss Francs (Purple):
If you worry that gold is already too “expensive,” since it is priced at twice its 1980 high ($850/oz.), think again. When adjusted for inflation, a 1970 dollar is worth $5.96 today and a 1980 dollar is worth $2.81. That’s using the BLS inflation numbers, which are very, very conservative. For gold to hit a new “inflation-adjusted” all-time high, it will have to reach $2,389. To equal its 1970 value, the beginning of the last bull market, it will have to reach $5,066. Jim Sinclair’s prediction is about mid-way between those numbers at $3,250.
But wait – let’s plug in the number using an inflation rate as calculated by John Williams (Shadowstats).
The price of gold using the SGS Alternate CPI, which calculates inflation the way it was calculated in 1980 when gold was $850 is $7,650. That’s apples-to-apples! That represents an increase from the current price of $1,700 by 4.5 times! Far fetched? I think not. That would translate into a silver price, based on historical averages, somewhere between $220 – $450 an ounce. I am not promising these prices, I am just showing you that gold and silver are not overpriced using the previous highs adjusted for inflation. That’s a logical place to start.
The following article by Bill Holter approaches this topic from a different perspective. His minimum number is $6,000/oz.
Check out the following interview with Doug Casey. It’s one that you don’t want to miss.