20 REASONS WHY GOLD WILL RISE
Jim Willie -- May 14, 2002
1. real rate of interest has been near zero since Oct 2001
- bond disincentive, no real return on investment
- credit market is 5x larger than stock market
- strong historical precedent for rise in gold
2. trade debt is approaching 5% of US GDP
- symptom of overvalued dollar, lost export competition
- strong historical precedent for decline in US dollar
- extremely strong inverse correlation between gold and US$
3. money supply increased 30% since Jan 2001, 85% rise since 1991
- monetary inflation plants seeds of eventual price inflation
- printing of "blank check" dollars has met every world economic accident since before the Asian Meltdown
4. rising world tension, desire for safer safe haven
- threats of terrorism (conventional, biological, chemical, nuclear)
- Middle East escalation, probably retaliation to US attacks on Al Qaeda
5. unwinding miner hedges, end of gold leasing, reducing supply
- 1000 ton annual supply/demand shortfall
- eventual central bank discontinued selling
- lost control by Gold Cartel (central banks, bullion banks, hedged miners)
- unwinding of largest naked short position in history (3 years supply)
- end of trashing of South African Rand (world’s leading gold supplier)
6. dismantled mining supply apparatus, from systemic price below production
- two years lag to bring new supply to market with higher prices
- decade of neglect, lowest prices generally for commodities since 1929
7. no more Japanese savings guarantees
- private citizen savings total $12 trillion
- reports pose that Japanese could eventually own 70% of world gold
8. new federal deficits from inefficient wartime and security spending
- increased supply of bonds leads to reluctance to maintain additional holdings
- corporate debt collapse leads to pressure on federal and household debts
9. trade tariff resumption discourages global trading village concept
- tension leads to reduced trade, cutbacks in dollar exchange, boycotts
10. accelerating worldwide currency turbulence
- Japan, South Africa, Argentina, Brazil, Mexico, Taiwan, PacRim, Turkey
11. world perception of American institutionalized dishonesty
- scandals, accounting fraud, broker conflict of interest, exaggerated earnings
- consequent resentment of American hegemony, lost trust
12. Arab & Islamic financial warfare countermeasures
- reflow of significant petrodollars to Europe
- potential for Arab minting of new Islamic inscripted coins
13. end old economic cycle of prosperity, begin new cycle to correct excess
- Kondratieff summer in 1999, followed by Kondratieff winter in early 2000’s
- new down trend began with the US dollar in January 2002
14. extreme rise in foreign holdings of US assets
- lost control of our own economy (interest rate, value of dollar)
- diversification away from American financial instruments
- flawed USTBond deposit base supporting entire foreign economies
15. correction of US dollar usage as store of value
- really a debt instrument in acute oversupply
- its gold collateral is in process of depletion, perhaps 50% depleted
- full circle coming toward currency backed by hard asset
16. rising costs from entire energy complex
- political, legal, environmental obstacles to increased supply
- obsolete natural gas infrastructure inhibits new supply
- both gold and natural gas highly correlated with crude oil
17. USTBond yield must rise to meet other world treasury competition
- other major currencies offer higher interest rates (dividend yield)
- poor competitive position versus Euro (trade surplus, 15x gold backing)
18. steep yield curve forecasts price inflation within 3-5 years
- refusal of long bond yield to come down in response to Fed rates cuts
19. Bank of International Settlements has targeted the US dollar
- BIS sees extreme valuation as unbalanced, and lack of collateralization as unstable
- Swiss desire to install Euro as new gold-backed currency
- reversal of yen carry trade, reversal of gold carry trade
- 10 years of carry trade have provided foreigners with necessary dollars
- previous BIS target was the Soviet Union
20. Sept 11th marks the turning point for US dollar
- 9/11/1989 presaged a rise in the dollar to stretched highs with fall of Berlin Wall
- 9/11/2001 presaged a correction after blowoff top following World Trade Center attack |
