I Think Will Happen to Gold Prices after the Election By
Patrick A. Heller, Market Update
November 04, 2008 - Numismaster
year, I have been repeatedly asked, "Who do you think
is going to win the presidential election?" My stock
answer has been, "Nobody." After briefly considering
my response, most people have said something along the lines
of "Unfortunately, you are probably right."
Barring any extreme legal difficulties, the election results
should be available by early Wednesday morning. Democratic
presidential candidate Barack Obama appears to have enough
of a lead in likely electoral votes that he will probably
From the perspective of gold, does it really matter who is
the next U.S. President? Contrary to what all the candidates
try to tell us, I don't think it really matters.
The U.S. economy is ultimately dependent on activity in the
private sector. The government cannot create any assets. It
can only gain assets through taxing, borrowing, confiscating,
or surreptitious theft through inflation of the money supply.
As I see it, if the government interferes with, or burdens
the private sector, it actually reduces total available wealth.
The greater the burden of government, the less wealth there
will be to share.
The wonderful attribute of the United States of America is
that, to an extent beyond that practiced in any other nation,
the government was minimal and had the least effect on the
lives of private citizens. As a result of this relative freedom,
Americans became the wealthiest people in history, setting
a shining example to be copied elsewhere.
The burden of American government has grown larger over the
years. As new laws and regulations damaged the economy, the
usual government response has been to enact even more laws
and regulations rather than eliminate the source of the original
The culmination of all the government regulation of the private
sector has resulted in the current horrible global financial
mess. Over the past few months, the various efforts by all
governments have eventually made the problems worse, not better.
The essay by Steve Forbes in the Nov. 10, 2008, issue of
Forbes details this process much better than I can cover here.
The financial condition of the country is sometimes so poor
that the government statisticians have, over the years, changed
how different financial data are reported to disguise how
bad matters have deteriorated.
John Williams of www.shadowstats.com converts current government
financial reports into data derived by the same methodology
formerly used by the U.S. government. In his latest analysis,
he indicates that the current rise in consumer prices is nearly
14 percent annually, the M-3 money supply is increasing at
almost a 14 percent rate, the unemployment rate is 15 percent
and the Gross Domestic Product is falling by 3 percent.
All of this poor economic news along with the guaranteed
rampant inflation from the recent bailouts has scared private
citizens and foreign governments and central banks to want
to bail out of the U.S. dollar. Gold has been one of the safe
haven alternatives that many have purchased. Knowing the widespread
fear about owning U.S. dollars and dollar-denominated paper
assets, the U.S. government and its partners have clobbered
the price of gold since mid July.
The new U.S. President faces an economy on the brink of depression.
I just don't see that either the Democratic or Republican
candidate accurately understands the underlying problems that
have caused this economic mess, or have the political will
to press for the reduction in government burdens that it would
take to get beyond these crises.
Instead, I expect the new President to press for more government
actions. These will have the unintended consequences of increasing
inflation and unemployment in the United States, crippling
exports, crushing the value of the U.S. dollar compared to
other currencies, and bringing on the worst depression in
U.S. history. Different candidates might take different actions
that speed up or slow down the process, but I don't see how
the ultimate result will be different.
To give one example of what I mean - On Oct. 7, the House
Education and Labor Committee (Rep. George Miller, D-Calif.,
chair) held hearings on "Saving Retirement in the Face
of America's Credit Crises: Short Term and Long Term Solutions.
One speaker, economics professor Teresa Ghilarducci of the
New School for Social Research, advocated that the federal
government nationalize 401(k) and other private retirement
account assets and replace them with government bonds paying
3 percent interest.
I have warned of this possibility for years. Don't be surprised
if this idea turns into proposed legislation in 2009. This
potential seizure of precious metals IRAs as part of confiscating
all assets in private retirement accounts makes a strong case
for owning gold and silver outside of retirement accounts.
Even the introduction of such a bill into Congress would be
enough to cause major upheavals in the economy.
Despite what the new U.S. President might do, I expect the
price of gold (and silver) to rise to levels so high that
it is difficult to believe. At the minimum, I expect gold
to reach $2,000 by the end of 2009. It could go much, much
The availability of physical gold continues to be extremely
tight. It is still almost impossible to find any coins or
ingots for immediate delivery and premiums are at their highest
levels in the past 30 years.
Premiums have been high enough for so long, that it does
look like some supplies are starting to come onto the market.
I would not be surprised to find supplies becoming available
faster and at slightly lower premiums in the next couple of
weeks. However, I also think there is a great risk of much
higher gold prices in a few weeks, so it may be better to
purchase your gold now.