Gold Should Be At $4,666 These Days – Here's Why

Since the Financial Crisis erupted in 2007, the US Federal Reserve has engaged in dozens of interventions/ bailouts to try and prop up the financial system…and the amount of money printed is absolutely staggering. As a result of this, inflation hedges, particularly Gold, have been soaring…[but] for gold, for example, to hit a new all time high adjusted for inflation, it would have to clear at least $2,193 per ounce. If you go by 1970 dollars (when gold started its last bull market) it would have to hit $4,666 per ounce. Words: 581

So says Graham Summers (www.gainspainscapital.com) in edited excerpts from his original article* entitled Where Should Gold Be Based On Inflation?

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!), has edited the article below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.

Summers goes on to say, in part:

“Here’s a recap of some of the larger Fed moves during the Crisis:

• Cutting interest rates from 5.25-0.25% (Sept ’07-today).
• The Bear Stearns deal/ taking on $30 billion in junk mortgages (Mar ’08).
• Opening various lending windows to investment banks (Mar ’08).
• Hank Paulson spends $400 billion on Fannie/ Freddie (Sept ’08).
• The Fed takes over insurance company AIG for $85 billion (Sept ’08).
• The Fed doles out $25 billion for the automakers (Sept ’08)
• The Feds kick off the $700 billion TARP program (Oct ’08)
• The Fed buys commercial paper from non-financial firms (Oct ’08)
• The Fed offers $540 billion to backstop money market funds (Oct ’08)
• The Fed agrees to back up to $280 billion of Citigroup’s liabilities (Oct ’08).
• $40 billion more to AIG (Nov ’08)
• The Fed backstops $140 billion of Bank of America’s liabilities (Jan ’09)
• Obama’s $787 Billion Stimulus (Jan ’09)
• QE 1 buys $1.25 trillion in Treasuries and mortgage debt (March ’09)
• QE lite buys $200-300 billion of Treasuries and mortgage debt (Aug ’10)
• QE 2 buys $600 billion in Treasuries (Nov ’10)
• Operation Twist 2 (Nov ’11)
• QE 3 ($40 billion in MBS monetization per month)

The above is just a brief recap. I’m almost certain I left something out. Indeed, between 2008 and today, the US Federal Reserve has grown its balance sheet from $800 billion to almost $3 TRILLION in size (larger than the economies of Brazil, the UK, and France).

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The Fed is not the only bank to engage in such profligate policies either. Thanks to its bond purchases as well as its LTRO 1 and LTRO 2 schemes, the European Central Bank (ECB) has in fact grown its balance sheet even larger than the Fed.

Country	GDP
European Union	$16 trillion
United States of America	$14.5 trillion
China	$5.8 trillion
Japan	$5.4 trillion
European Central Bank	$3.8 trillion
Germany	$3.2 trillion
US Federal Reserve	$2.8 trillion
France	$2.5 trillion
United Kingdom	$2.2 trillion

As a result of this, inflation hedges, particularly Gold, have been soaring. Gold was, is, and always will be THE ultimate storehouse of value. Mankind was prizing it long before the concept of stocks, mutual funds, or paper money even existed so, with world central banks printing paper money day and night, it is no surprise that Gold is now emerging as the ultimate currency: one that cannot be printed….

Now, a lot of commentators have noted that gold is already trading above its 1980 high ($850 an ounce). What they fail to note is that thanks to inflation, $1 in the ’70s is worth a LOT MORE than a $1 today.

$1 in…	Is Worth Today
1970	$5.49
1980	$2.58

For gold to hit a new all time high adjusted for inflation, it would have to clear at least $2,193 per ounce. If you go by 1970 dollars (when gold started its last bull market) it’d have to hit $4,666 per ounce.

Conclusion

If you do not already have exposure to Gold, consider getting some now. If you do decide to buy, I strongly urge you to buy actual physical bullion because it is not clear that the various Gold ETFs actually own the bullion they claim to own.”

*http://gainspainscapital.com/2012/10/29/where-should-gold-be-based-on-inflation/

Editor’s Note: The above post may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.

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