Our theory at Higher Gold Prices.com is that the rising price of gold is not an increase in the price of gold. It is in reality a reflection of the reduction in real purchasing power or value of the world’s currencies. The evidence that proves this is that gold has been rising in price denominated in all the developed world currencies reflecting this. This trend has been in place since now 2005 and in the last two months started to significantly accelerate. We believe that the third phase of the bull market in precious metals has now begun. This third phase will end in a mania and bubble like in 1979-80 but it will be even larger than thirty years ago. In fact it will make the bubble in NASDAQ stocks from 1998-200 look tame.
The reason the eventual surge in gold prices will be larger this time than in the late 1970’s is back then the US fiscal situation was much more stable and our economy wasn’t highly leveraged like today. We had a much smaller relative to GDP national debt, a trade surplus and favorable demographics. This time all of those factors and two additional bubbles in government debt and the US Dollar will eventually burst over the next two to three years. More importantly investors, in China and the developing economies back then weren’t legally allowed to invest in precious metals nor had no wealth to speak of will all participate. This time the bubble will be truly global in nature. There will be millions of savers in Europe who realize there wealth is evaporating and they will flood into precious metals. As gold and silver prices continue to levitate higher and millions of investors around the globe finally realize their wealth is being stolen, they will rush to protect what wealth they have left and buy precious metals regardless of price. We estimate this will lead to gold and silver rising 275% to 375% from today’s current price levels. That that is why our eventual price targets for gold is $5000 and silver at $150 by the end of 2015.
There are two main factors that are in play lowering the value or purchasing power of all currencies. The first is the simple fact that the developed economies central banks have printed a significant increase in the supply of their currency outstanding. Just like with a stock if the company issues additional stock, your original investment is diluted down and worth less, the same is true with a currency. It doesn’t always happen immediately especially with the low velocity or turnover of money in the U.S. today but it will still inevitably occur. The second reason the US dollar is weak and will continue to weaken longer-term is less demand. As the US has become a lee attractive place to invest and the asset bubbles in our economy continue to deflate, there is simply less demand from foreign investors for our currency. Yes short term, they occasionally flood back into dollars and US bonds in a flight to safety but that is just a short-term blip in an overall negative trend over a period measured in years.
Ben Bernanke’s incredible emergency monetary policy steps have increased the money supply by 300% just since 2008. If there wasn’t continued deflation of bubbles in the US economy, inflation would be raging by now but it is still occurring. Inflation is already at about 3.6% and might cool as the economy contracts again. However all of the excess money printing and incurring of massive amounts of new government debt will eventually be accounted for. The vehicle for that accounting will be in the price of gold and silver.
That is why we personally have sold all of our conventional stock and bond investments and currently invests solely in Gold and Silver ETF’s and gold/silver mining stocks. Like most precious metals investors we like owning the physical gold and silver ourselves. However in our brokerage and retirement accounts we prefer to be 75% invested in physically backed ETF’s and 25% in mining stocks. We feel so strongly about this that we began our newsletter update service with our actual personal portfolios included in model portfolios for our subscribers. We advocate that others have a minimum of 50% in precious metals and for more aggressive investors we literally are comfortable being 100% invested. This bubble will be the inevitable result of all the prior bubbles deflating and an accounting of all the irresponsible fiscal and monetary policy of the last thirty years and we don’t intend to miss it. The time eventually will occur where precious metals are overvalued and stock and real estate are ridiculously cheap. Then we will sell all of our precious metals and swap into paper assets that will finally be at true bargain basement prices, however that point is still years away.
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