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What I Think Will Happen to Gold Prices after the Election
By Patrick A. Heller, Market Update
November 04, 2008 - Numismaster

All 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 win.

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 problem.

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 higher.

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.

Numismaster


What I Think Will Happen to Gold Prices after the Election


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