Gold $1,600, silver $40 as global financial crisis looms
Posted on 18 July 2011 with 11 comments from readers
So the British deputy prime minister Nick Clegg says he is ‘incredibly worried’ about another global financial crisis. Is it any wonder then that gold is at an all-time high and silver prices are rising even faster.
ArabianMoney readers will hardly require us to make much of an explanation. We have been ‘incredibly worried’ for months if not the past two or more years.
Debt disaster
It has always seemed to us that the authorities fought a fire with gasoline, adding more and more debt to an economic disaster caused by too much debt in the global economy.
The system has not been allowed to purge itself. On the contrary the bad was bailed out with the good and everybody found a place in the sun for a little longer.
Of course the cracks have been visible from Day One. The non-existent jobs recovery. The inflation of food and fuel prices. The deepening depression in housing.
What happens from here? Well, there will be some sort of financial blow-up. There will be a reversal of the financial rally that we have seen since March 2009.
That is clearly bad news for equities. But then bonds may not do so much better because interest rates are being held low, and that is a part of the problem, not the solution.
Indeed, if the classic formula for a major financial crisis is followed the bond market will where the real action happens. But then anybody in Spain or Italy knows that already. The contagion should not therefore come as a shock.
Will gold and silver rocket in this crisis? They fell in 2008-9. However, with the bond market in trouble this is not the same crisis, so it will be different this time.
One banker said the other day that if the eurozone crisis really erupts then we will see gold at $2,000 and silver at $1,000. That is perfectly possible.
Watch silver leap
The gold price is already not far off this level. The silver price is so artificially held back that the short positions could breakdown at any moment and then we would really see what silver is worth.
Those investors shorting the market at the right moment would also naturally cash in so long as their counter party risk held up. These are going to be wild times and the general investor will be the loser and only the true contrarians win out.
Mr Clegg is indeed wise to be worried but is he not supposed to be in charge?
11 Comments posted by readers:
Very worthwhile commentary, Peter!
From the Ed.: “One banker said the other day that if the eurozone crisis really erupts then we will see gold at $2,000 and silver at $1,000. That is perfectly possible.”
. . . and if Israel attacks Iran next month (I give this a likelihood of 65%!), that event, coupled with an eventual eurozone eruption, will surely drive the PM prices much higher.
Israel’s top intel analysts are urging the political leadership to refrain from attacking Iran; and many US Intel analysts have sent a letter to Obama urging him to intervene. Yet Israel’s senior leadership is ignoring the likelihood that some of Iran’s 11,000 missiles could do any damage. Go here:
http://www.consortiumnews.com/2010/080310c.html
and here:
http://www.youtube.com/watch?v=YQ6iwNznvMw
Got gold?
Got silver?
Gold and cash are the favourite asset classes in UAE, Singapore and Hong Kong. Gold is#1. The survey included 800 investors/HNWI’s in the UAE.
http://goldbasics.blogspot.com/2011/07/gold-most-popular-asset-class-in-asia.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+blogspot%2FDVTI+%28Gold+%26+Silver%29
Republicans have cut a deal with Obama to let him raise the US debt limit in 3 stages by up to $2,500,000,000,000. It is all on CNN. It isn’t law yet, but will be soon. They got their orders from Wall Street to GET IT DONE !
Now the attention changes to Europe, and to the possibility of QE 3 in the USA. It will be interesting to see how far QE 3 will pump up the Dow and gold price. I expect to see it around April of 2012. As soon as it is announced, buy stocks. Set a goal to make 10%, then get out. Over the weekend, Goldman put out a notice that the economy was slowing down.
I just read an article about some giant hedge fund manager. I think it was in the New Yorker magazine. He said look for BIG problems in late 2012 or early 2013. We agree in that we both of think that the debtor countries will eventually try to inflate the debt away. He thinks that will cause a major crisis. I don’t.
@ Comment by obewon, The Contrarian – 18 July 2011
The price of Gold and Silver (in current fiat terms) will not matter one bit if Israel does the unthinkable.
There are many very good reasons indeed why the US (and its Anglo / Nato allies) have not attacked Iran. The very fact that the US has encircled and put sanctions on Iran (the modern equivilent of laying seige), yet not moved against Iran (even with the largest and most powerful military machine the world has ever seen) must surely speak volumes to even the uninformed.
Anyway, keeping things ‘economic’ (in the spirit of this website) rather than going ‘geopolitical’, and also keeping things very short (as I know I go on a bit), an attack on Iran would be an act of supreme folly from an economic point of view alone. Israel needs to consider the global economic situation and remember who thier ‘paymaster’ is (billions in direct government funds / aid / grants / defence equipment coming from the US, plus billions more from indirect diaspora investments – again coming mostly from the US or US influenced countries).
The US is insolvent, and is increasingly relient on printing money, leverage of already leveraged assets, and ‘international goodwill’ (with a nearby ‘base’ or super-carrier just in case ‘good will’ is not enough). China and other countries are turned to by the US – either to keep buying US debt (which pays for the military and foreign aid / grants / etc), or at least not dump the debt they already have. China (and Russia too) are very heavily invested in Iran (both economically and politically). If China looses its access to Iranian oil, as they have to Libyan oil, they wont’t just get a bit cross as per Libya, guess what they will do with thier dollar assets and other US debt. Guess what would then happen to the flow of cash and US arms to Israel if the dollar began to tumble. Guess what would then happen to the status of the US dollar as the worlds reserve currency, Guess what would happen when the military machine can no longer be paid for, guess what would then happen……ad infintum.
@ The Old Man:
I agree with your remarks in total, except for your first sentence. There are very good reasons why the Anglo-American power elite will not attack Iran. In the link I provided (see above), it is Israel that is planning this attack, not the Anglo-American axis.
If Israel does the “unthinkable”, why do you say the price of gold & silver will not matter? Are you suggesting that one won’t be able to purchase gold because all hell would break loose, and nothing in the world will then matter?
Comment by obewon – 19 July 2011
Thanks for your response to my posting. The relationship between Israel and the US (and historically with the UK, ie the ‘British Mandate’ etc) is very complex, but basically if we can dumb down our thinking sufficiently to look upon Israel as being ‘a State of the United States’ (with a disproportionate say in US foreign policy) and the UK as being an unfailing ’subordonate partner’ of the US, then Israel will only take action if it believes the US will in some way be behind them (if only to block UN santions and keep the fuel and ammo flowing).
As for the price of Gold and Silver I did add the caveat ‘in current fiat terms’. The US have so far got away with Afghanistan, Iraq, Yemen, and Libya (and many other smaller scale actions) without collapsing the dollar under a weight of non-payable debt. I believe a conflict with Iran would change that. Fiat currencies such as the Dollar would end up like the Zimbawe dollar – one ounce of Silver priced at several trillion dollars.
Gold and Silver would of course retain thier true intrinsic values and could be ‘exchanged’ for whatever paper or fiat currency emerges from the ashes. Gold and Silver would therefore have done what they have done for thousands of years – preserve wealth through wars and the collapse of empires.
Thanks for allowing me to clarify my original post.
@Obewon
Those links are over a year old and they said that there would most likely be an attack on Iran before the end of the year in both links provided above. The end of the year was almost 8 months ago.
@ Andy:
My sincere apologies for sending outdated links! Here’s the link I meant to send:
http://www.zerohedge.com/article/cvn-77-ghw-bush-enters-persian-gulf-cia-veteran-robert-baer-predicts-september-israel-iran-w
(in my “Middle East” folder, I mistakenly copied two old links, then pasted them into my remarks, without first opening them! My bad!).
Regarding those old links, we already know that Israel attacked Iran last September 2010, using the Stuxnet Internet missile, which caused major damage to Iran’s nuclear reactor.
@ The Old Man:
Thanks for the clarification . . . yes, right on target!
Your phrase is worth repeating here:
“Gold and Silver would therefore have done what they have done for thousands of years – preserve wealth through wars and the collapse of empires.”
Typo ?
“One banker said the other day that if the eurozone crisis really erupts then
we will see gold at $2,000 and silver at $1,000. That is perfectly possible.”
. . . gold at $2,000 and silver at $100 . . . IMO.
That is, gold appreciating by 25% and silver by 250%, not 2500%.
The gold-to-silver ratio will be half of 40-to-1 at 20-to-1, not 2-to-1.
The one scenario I can see for the G/S ratio to approach 1/1 will be
if there is a universal craving for a BELIEVABLE Medium of Exchange,
i.e. when the financial systems of the Whole World crash completely,
taking all the paper currencies and their digital analogs (!) with them.
In that case, gold will be hoarded and silver, what there is of it, will
circulate freely, itself becoming an analog of gold. Under these con-
ditions, pricing metals in worth-nothing paper will have stopped.
Maybe we should begin getting used to doing that now and consider
a 1/10th ounce of silver as enough to live on for a day, 3 ounces for
a month. Exercise: divide your silver ounces by 3; that is the number
of months you will be able to support yourself after the SHTF. Divide
by 12 for the number of “years of life” contained in your silver. How
does that number compare to your remaining life span? Sobering, no?
@ Denarius:
Yes, your comments were quite sobering!
I like your phrase “pricing metals in worth-nothing paper” !