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Experts Predict News Record Highs for Gold
By Pat Heller, Market Update
September 23, 200
8

In the past week or so, the spot prices of gold and silver have risen more than 20 percent and 25 percent, respectively, from their recent lows. The prices of gold and silver bullion-priced products have gone up by even higher percentages as buyers scrambled to purchase any coins or ingots they could find.

Why the rush?

Simple. Since the U.S. government bailout of Fannie Mae and Freddie Mac just over two weeks ago, global financial markets have seen their greatest turmoil at least since the Great Depression. The largest U.S. banks, brokerage firms and insurance companies were on the brink of collapse or had filed for bankruptcy.

Since the beginning of last week, the U.S. government has taken several increasingly desperate steps to seize control of the U.S. economy. Bailouts were coming so fast and furious that the Federal Reserve ran out of resources and had to seek loans from the U.S. Treasury. Finally, even the U.S. Treasury ran out of immediate cash and had to beg $180 billion from other central banks to try to manage the liquidity crisis.

As a result, the U.S. government has not only taken over the two largest mortgage companies in the U.S. (Fannie Mae and Freddie Mac) it also has the option to take over AIG, the largest American insurance company. Late last week, the government announced that it will reimburse banks and financial firms for their bad debts and guarantee the assets of money market funds. These last two pronouncements have a potential cost to taxpayers, as admitted by the government, of as much as $750 billion. Typically, such statements of cost to the taxpayers turn out to be a tiny fraction of eventual cost, so expect the eventual tab to come to double or quadruple the quoted figures.

The legislation for absorbing the bad debts is currently in Congress. I have reviewed an early draft. It grants virtual dictatorial powers to the Secretary of the Treasury in interpreting and implementing the law. It also includes a section that explicitly prohibits other government agencies or courts of law from overruling the Secretary of the Treasury's judgment.

In effect, the U.S. government is in the process of nationalizing major parts of the U.S. economy.

The only way that the U.S. government can practically afford all these burdens is through massive inflation of the money supply. Foreign governments and investors understand this. They are intelligent enough that they have already started to ramp up efforts to dump U.S. dollars and dollar-denominated assets.

In place of the U.S. dollars, both American and foreign investors are seeking assets denominated in other currencies and - gold and silver.

One report said that until a few weeks ago, only about 2 million ounces of silver had been imported into India so far in 2008. However, in just the past few weeks silver imports were well over 30 million ounces.

European buyers have had so much difficulty locating any physical gold to purchase on their continent that they are blitzing American dealers to see if they have any product to purchase. In my judgment, this is it and it is now.

Gold and silver prices will be extremely volatile in the coming days, but I expect to see new record highs for gold and the highest prices for silver since January 1980 (ignoring inflation) within the next few weeks. If the politicians manage to hold down prices through the U.S. elections in early November, we may not reach record levels until later this year or by spring of 2009 at the very latest.

Last week, the price of gold experienced its largest one-day jump in price ever. Silver also enjoyed one of its largest ever price increases since 1980. Such large movements tell me that the trading partners working with the U.S. government to suppress precious metals prices have been so busy simply trying to survive that they no longer have the assets or personnel to hold down gold and silver prices.

Even a report released last Wednesday by John H. Hill and Graham Wark, metals analysts for Citigroup, stated, "Frankly, we're surprised that gold is not already at $2,000 per ounce." If such mainstream analysts expect the price of gold to double, that is almost a sure sign that the floodgates are about to give - real soon!

Numismaster


Experts Predict News Record Highs for Gold


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