Fundamentals

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In just four months, the price of gold has suffered an incredible 19% fall in price from its August high of $1,900/ounce to December’s low of $1,529.   Those who own gold were shocked.  Potential gold buyers were dismayed.   Overwhelming confidence in the gold market was supplanted by fear.

People—including me—are wondering how low can gold go?

But while gold’s 19% fall has caused me some amazement, it has not inspired my fear.  In fact, I’m mostly amused.

Why?  Because, when I look at some facts concerning gold that I regard as “fundamentals,” logic compels me to conclude that the current fall in the price of gold is only temporary; that in the next two to twelve months, the price of gold must rebound and surpass previous highs.

Here are some of my “fundamentals”:

1)  The national debt is too great to ever be repaid in full.  I believe John Williams’ (shadowstats.com) calculation that the real national debt at $75 trillion (rather than $15 trillion reported by the gov-co) is correct.  If so, the debt can’t possibly be repaid and must be repudiated by either 1) hyper-inflating the currency; or 2) abandoning the fiat dollar.  In either case, the price of gold should rise dramatically.

 

Schiff, Napolitano: Don’t Save in Fiat Dollars

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Insofar as most people think at all, most people think that our government’s deficit financing (borrowing) will leave today’s debt to future generations.  We try not to think about it because it makes us feel a little bad about leaving our debts to our kids and grandkids.  But on the other hand, we’ve done so much for the little bastards and bitches that they deserve to pay our debts–right?  Better that “somebody” (even our own kids) be forced to pay our debts than we pay for them, ourselves.

After all, we’re Americans.  We are therefore entitled to “shop til we drop” on credit–and when our credit cards are maxed out, we’re entitled to get newer credit cards.   True–”somebody” may someday have to pay our debts, but so long as that “somebody” isn’t you and me, to hell with ‘em.

Peter Schiff [photo, right] disagrees with the idea that we’ll leave our debts for future generations.  Schiff argues that today’s governmental borrowing will not be passed on as debt for future generations, but will instead cause immediate and significant increases in inflation that will dramatically afflict this generation.  Inflation will essentially “tax” this generation by robbing all who save their wealth in the form of fiat dollars and/or dollar-denominated debt instruments.

By means of inflation, this generation (not the next one) will be called on to “pay” for much of the current debt.