Hi Andrew.
Well I certainly agree that a substantial move in the price of gold bullion to 450 or 500 would see the valuation of many juniors go higher. This may occur in the near-term, it's hard to say. Certainly, over the next decade, it is entirely possible.
However, I find myself thinking "OK, let's assume I'm these crooked investment banking types at the highest echelons of the social power pyramid, and I want to fleece absolutely everyone out of their money." And BTW, I don't mean to indicate that this IS how they think, simply that it is a very useful thought experiment to assume this to be the case.
Now, I realize that there are HUGE liquidity problems on the horizon. So naturally, I seek to create an extended period of "artificial" liquidity, so that I can get as liquid as possible before the scam is completely up. So, I talk to my pal Easy Al, and we work out this plan to absolutely flood the system with debt/credit-based, artifical liquidity so that me and my friends can turn liquid. Now, naturally, this avalanche of liquidity raises all boats, and bonds, equities, and commodities all have a really great ride (well, during times of ample liquidity, of course there is some ugliness when certain bubbles collapse).
So imagine tomorrow you wake up, and it's like half of what Argentina went through when their banking system collapsed. All of a sudden, there's simply no money. And everyone tries to turn liquid. The problem is, that all their assets on which they were calculating their wealth plummet like a stone (and this includes stock, bond, real estate, retirement saving plans, etc). To top it all off, people continue to find employment harder to come by, as we face a global aggregate demand shock. I just don't see how, in this environment, cash is made available to speculate on gold. I can see this happening AFTER the worst of the asset debt deflation is over ... like after 1932 in the 1930's ... but not before.
Now, if one has wealth to protect ... by whatever fortuitous circumstance ... and this means that one already has sufficient liquidity and earnings power that one is not required to sell one's presently held assets at distressed prices ... in this case, I can see people turning to gold as an excellent "store of value". Thus, I would expect demand for gold to be sustained in a deflationary collapse as a store of wealth. But I certainly don't expect it to shoot to the moon. And I don't anticipate gold to be used to buy bread, or as a medium of exchange, but rather as a store of wealth for those that have it to protect. Of course, however, there won't be a lot of cash to speculate on gold's price movement ... because, well, that's the nature of a deflationary liquidity crunch.
And that's my rationale for the future outlook of gold. Of course, until the deflationary crunch hits, I would anticipate speculative money to continue to flow into precious metals shares, and most particularly the juniors ... because it sure has heck isn't going to go into long-term U.S. Treasuries. (smile)
JM2C on the matter. Would love to hear contrary or supporting views.
Best wishes,
Glenn |
