"Central banks are buying the precious metal as a counterbalance to their devaluing currencies
Today, I’d like to focus on one important idea: the direct relationship between the rising price of gold and the rising levels of government debt that result in currency debasement. Since we measure investment performance in currencies a clear understanding of the outlook for currencies is critical.
In order to understand gold’s relationship, it’s important to understand that gold is money. It is not simply an industrial commodity like copper, or zinc. It trades on the currency desks of most major banks—not on their commodities desks. The turnover at the London Bullion Market Association is over $37 billion per day, and volume is estimated at five to seven times that amount – clearly, this is not jewellery demand.
The world’s central banks know gold is money: after decades of modest sales they have become net buyers since 2009. This trend strengthened in 2010 and gained momentum in 2011. They are buying gold as a counterbalance to their devaluing currencies.
As money, gold has provided the most stable form of wealth preservation for over three thousand years – it still does today. Gold has outperformed all other asset classes since 2002.
This chart clearly shows that U.S. federal debt (purple) and the price of gold (gold) are now moving in lockstep. This correlation will likely continue for the foreseeable future. The red line represents the repeatedly violated government debt ceilings.
Based on official estimates, America’s debt is projected to reach $23 trillion in 2015 and, if the correlation remains the same, the indicated gold price would be $2,600 per ounce. However, if history is any example, it’s a safe bet that government expenditure estimates will be greatly exceeded, and the gold price will therefore be much higher..."
at http://www.stockhouse.com/Columnists/2012/Jan/11/Why-rising-debt-will-lead-to-$10,000-gold
Today, I’d like to focus on one important idea: the direct relationship between the rising price of gold and the rising levels of government debt that result in currency debasement. Since we measure investment performance in currencies a clear understanding of the outlook for currencies is critical.
In order to understand gold’s relationship, it’s important to understand that gold is money. It is not simply an industrial commodity like copper, or zinc. It trades on the currency desks of most major banks—not on their commodities desks. The turnover at the London Bullion Market Association is over $37 billion per day, and volume is estimated at five to seven times that amount – clearly, this is not jewellery demand.
The world’s central banks know gold is money: after decades of modest sales they have become net buyers since 2009. This trend strengthened in 2010 and gained momentum in 2011. They are buying gold as a counterbalance to their devaluing currencies.
As money, gold has provided the most stable form of wealth preservation for over three thousand years – it still does today. Gold has outperformed all other asset classes since 2002.
This chart clearly shows that U.S. federal debt (purple) and the price of gold (gold) are now moving in lockstep. This correlation will likely continue for the foreseeable future. The red line represents the repeatedly violated government debt ceilings.
Based on official estimates, America’s debt is projected to reach $23 trillion in 2015 and, if the correlation remains the same, the indicated gold price would be $2,600 per ounce. However, if history is any example, it’s a safe bet that government expenditure estimates will be greatly exceeded, and the gold price will therefore be much higher..."
at http://www.stockhouse.com/Columnists/2012/Jan/11/Why-rising-debt-will-lead-to-$10,000-gold
