By Dominique de Kevelioc de Bailleul
To the ‘man on the street’, a price target of gold $3,500 must sound to him like the typical hyperbole of gold peddlers. It must; sentiment of the gold-market-ignorant American public of the future price of gold still remains low.
As Bill Murphy’s GATA has said, “They don’t even know how to spell gold.”
That’s because the public really has to see the effects of the Fed’s QEs. In fact, a relatively few Americans haven’t an idea what so-called ‘quantitative easing’ truly means to him, personally, just as few understood similar Fed monetary practices orchestrated by Arthur Burns and William Miller during the inflation-roaring ’70s. But he sure will see how inflation is eroding his lifestyle in the coming months—starting with a much higher oil price, and his coincidental savior, gold.
But something convenient for the monetary ‘authorities’ just happened.
A day before Bernanke pulls the trigger on indefinite purchases of mortgage-back debt, anti-American sentiment suddenly flares up in the Middle East and North Africa.
The thinking behind the “there’s no such thing as a conicidence” may be driven by the assumption that Bernanke and his handlers knew that during the aftermath of the collapse of Lehman, AIG and the rest, the talking point, that the threat of another dip in the housing market will lead the U.S. economy into ‘deflation’ can only be told for so long. Bernanke knew that food and energy prices are poised to soar faster than these dollar-sensitive ‘things’ rose during the 1970s.
Thinking that the Fed believes its own BS regarding the living costs of the average American reveals profound ignorance of the Fed’s real mandate, especially at this late stage of the Kondratiev debt cycle. That mandate is: to protect its member banks.
And protected they will be. With the Fed coming in at the last moment to cope with the mess at JP Morgan and Morgan Stanley, the effects of an addition of $1.3 trillion (estimated by the close of calendar year 2013) expansion of the central bank’s balance sheet in the coming months will necessitate a new mantra from the Fed and MSM to now explain rapidly increasing food and energy prices during a global recession.
This time, China, alone, can no longer be blamed for stubbornly high oil prices. Its economy is dropping like a stone, too. Therefore, a new scapegoat for the future price of $150 to $200 per barrel of oil will emerge in the Middle East and North Africa, instead. It will be called, either the “Arab Fall” or “WWIII”.
With the latest Fed announcement, it should be abundantly clear by now: the Fed is intentionally debasing the dollar, and it appears that the central bank will continue to debase the dollar until it fears a currency collapse—a course that Ron Paul said is a “detachment from reality,” after hearing of the press release of Fed’s FOMC meeting decision, Friday.
The Fed lives in reality, and it knows what it’s doing many months ahead of a carefully coordinated plan of public distraction.
There’s little doubt; gold will take off and begin the final stage of this tremendous secular rally. Today’s low sentiment among mom and pop for holding gold will change this year and accelerate in 2013, taking gold to great heights. Gold has reached new highs against the Indian rupee and near-highs priced in euros.
As far as the dollar, an ultimate price target for the gold price of $2,000 will turn out to be much, much too low. It’s much more likely that Egon von Greyrz’s target price of $3,500 to $5,000 within 18 months will make much more sense, in retrospect.
The following chart provides a rational for a target gold price of $3,500.
As an example of the Swiss economist and money manager Marc Faber comments about the effects of inflation, the chart (above) shows that inflation doesn’t manifest in all markets at the same time.
In the chart, the data show inflation had flowed into the oil market months following the peak in the gold price at the end of 2011 through to today. The expected next rally in the gold-to-oil ratio is poised to test the Aug. 2011 high of 24. But, instead of oil surging while gold was coming off its Apr. 2011 all-time high, today, both ‘commodities’ are expected to move much higher as a result of QE++, with the gold price outperforming the oil price by a considerable clip.
With predictions of a minimum oil price of $150 as a result of the Fed’s new QE-to-no-limit plan (to north of $200 in the event of an attack on Iran) and the multiple of the all-time high gold-to-oil ratio of 24 applied to the oil price, the gold price calculates to $3,600. In the event of a $200 per barrel handle, $the target price moves up to $4,800.