Matterhorn
Asset Mgt: Three Realistic Gold Targets: $6,000 - $7,000 - $10,000 By Egon von Greyerz
| Tuesday, September 7, 2010
Warning: We present to you the analysis of Matterhorn Asset
Management. We fully agree that the long-term prospects
for gold appear extremely bullish. However, given that global
central bankers, including the Fed, are not yet printing
significant amounts of new money, the potential for significant
downtrends exists. There are two short-term trends going
on here. First we have new buyers entering the market to
buy gold. Second we have the deflationary pressure that
not much new money is being printed at present. These two
factors may make gold extremely volatile in the short-term.
Buy gold as a long-term hedge but realize new gold investors
are likely to be "weak" holders of gold and could
be shaken out in any correction, making for an extremely
rocky ride.
Fundamental and technical factors for gold are now in total
harmony and gold is entering a virtuous circle that will
drive the price up at its fastest pace since this bull market
started in 1999.
It is a fact that gold in US dollars
(and many other currencies) has gone up 400% in eleven
years or 16% per annum annualised.
It is a fact that the US dollar has
declined 80% in value against gold since 1999.
It is a fact that the dollar and most
other currencies have gone down 98-99% against gold since
1913 when the Federal Reserve Bank of New York was created.
It is also a fact that the Dow Jones
(and many world stock markets) has declined over 80% against
gold since 1999.
It is a fact that gold has made a new
all time monthly closing high in dollars in August 2010.
Gold trend
We expect gold to start a substantial rise now which will
continue for 5-10 months before any major correction. Gold’s
technical picture is extremely strong with a continuous rising
pattern of higher highs and higher lows with the steepness
of the curve increasing. From much higher levels we are likely
to see a correction that could last up to a year before the
next rise which will last several years before we see a significant
peak. Once gold has topped we do not expect the same kind
of decline as after the 1980 peak since gold is likely to
become part of a future reserve currency. At that point gold
will be a solid but unexciting investment with very little
upside potential. But that is likely to be a few years away.
In spite of a 5 times increase in the value of gold or an
80% decline against many currencies and stockmarkets in the
last 11 years, most investors own no gold and still do not
understand the importance and value of gold. In a world of
constant money printing and credit creation leading to devaluing
currencies and devaluing assets, gold reflects stability and
is virtually the only store of value that cannot be destroyed
by governments.
The average asset manager, fund manager, pension fund or
private individual owns no physical gold and at best has a
very small exposure to some precious metals stocks. And in
spite of this gold has gone up over 400% in 11 years. How
is that possible? For the simple reason with the relatively
modest demand that we have seen in the last few years, there
is not enough physical gold even at these levels. The increase
in demand that we have seen has most probably been satisfied
by central banks leasing or lending their gold to the bullion
banks. Central banks supposedly own 30,000 tons of gold but
unofficial estimates of their real holdings are at 15,000
tons or less.
So what are the factors that are likely to lead to a major
rise in the gold price?
We have for several years outlined in our Newsletters the
problems in the world that inevitably will lead to massive
money printing and a hyperinflationary depression (see for
example “Alea Iacta Est” and “There Will
Be No Double Dip…” on the Matterhorn Asset Management
website).
There are three insurmountable problems:
Real unemployment at 22% in the US will continue to go
up
The budget deficit will increase dramatically due to the
problems in the economy and in a few years time the interest
on the Federal Debt is likely to be higher than tax revenues.
None of the problems in the banking industry have been
solved but merely swept under the carpet by phoney valuations
of toxic debt with the blessing of governments. The circa
$20 trillion that were pumped into the world economy to
save the financial system in 2008-9 have had a very short
term beneficial effect but solved none of the problems.
The effect of this massive $20 trillion infusion has been
ephemeral since we are entering the autumn of 2010 with virtually
every single economic indicator and statistic in the US deteriorating
rapidly. With interest rates already at zero there is no ammunition
left but one. And it is this specific last bullet that will
be used to infinity in the next few years and starting very
soon, namely UNLIMITED MONEY PRINTING. Every single area of
the US economy will need support or printed money, whether
it is the federal government, the states, the municipalities,
banks, pension funds, insurance companies, the unemployed,
corporations, health care, housing market, commercial real
estate, individuals, etc, etc, etc. The list is endless and
many other countries will follow.