My long standing target for gold of $10,000 in today’s money and much, much higher in inflationary terms, is now more probable than ever but I hope it will never be achieved. When gold goes to $10,000,….[It] will not just reflect inflation and falling currencies like in the 1970s but a much more serious or even catastrophic situation both in the U.S. and globally so let’s look at a potential scenario for the next few years. This is obviously not a forecast but more of a rough sketch of what could happen:
(Please note: Lorimer Wilson, editor of munKNEE.com (Your KEY To Making Money!), has edited* ([ ]) and abridged (…) Egon von Greyerz’ original article here for clarity and brevity to ensure a fast & easy read. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.)
$300 IN 2002 TO $1,920 IN 2011 WAS JUST THE FIRST LEG
…The ride from $300 in 2002 to $1,920 in 2011 was spectacular but the gold price rise was just a confirmation of the risks that we had identified which led to the 2007-9 financial crisis. The world financial system was minutes away from going under in 2008 but was saved with tens of trillions of printed money issued by the Fed and other central banks around the world. This did not save the world but postponed the eventual collapse…
- 10 years have passed since the culmination of the Great Financial Crisis…but the world has learnt nothing.
- The cause of the problem in 2007-9 was debt in various forms, including derivatives and today, with global debt having doubled since 2006, the risk position is exponentially more explosive…
THE TRIGGER FOR THE 2007-9 CRISIS – SYNTHETIC CDOs – IS BACK AGAIN
The trigger last time was derivatives on mortgage debt but, clearly, the world has a short memory since the synthetic CDO market (Collateralised Debt Obligations) is back with a vengeance. U.S. synthetic CDOs have grown 40% this year.
- This time the CDOs are not on mortgages but on corporate debt.
- That market is considered a lot safer than the mortgage CDOs…but, if we look at corporate debt, it is today at an all time high against GDP at 73% up from 45% in 1971.
- The synthetic CDO is a highly leveraged instrument that can involve multiple bets on the same loans so these CDOs are just another example of “the more it changes, the more it stays the same”.
In other words, global debt is at an all-time high and the dangerous derivatives we saw last time are back again.
2007-9 WAS A REHEARSAL – THE REAL EVENT IS STILL TO COME
The 2007-9 crisis was only a rehearsal for what we are to see next. The rubber band is now stretched to a maximum and there are bubbles everywhere. Just like the world on the surface seems to have been functioning for ten years since the crisis, why couldn’t this continue for another ten years? Yes, in theory it could but at some stage we will reach the point when that little boy calls out “the Emperor has no clothes”…
GOLD AND SILVER GETTING READY FOR LAUNCH
2019…looks like the year when we could experience a turn in markets and the world economy:
- Our proprietary long term cycle system points towards a potential top in the U.S. stock market in May (the same system forecast the Aug-Sep 2011 top in gold two years in advance) but a cycle system can’t…predict the magnitude of the turn…
- Even if this cycle point turns out to be nothing, global stock markets are very likely to start their long term secular down trend sometime in 2019.
- Gold and silver are finalising their correction now and…[may] have seen their correction lows already. If not, they should happen in the next 2-3 weeks.
- The gold-silver ratio just made a new high above 87 and reversed quickly last week.
- …bearish divergence is an important sign of a market turning down.
I have often said that silver is the leading indicator for the precious metals. Thus silver will take the lead in the coming precious metals bull market. It could be that we saw the turn already last week. If not it should happen later in May.
The metals are ready to start the most spectacular bull market the world has ever seen. This market is like a coiled spring and we will see rapid moves to the upside in both gold and silver.
- The first target for gold, which could be reached quickly, is $1,600.
- Silver will probably go to at least $25 at the same time…
…Since the coming collapse is likely to be greater than anything seen in history investors who want to avoid a total annihilation of their wealth
- must reduce exposure to all the bubble assets, stocks, bonds, property, and banking system and
- put 25% in physical gold and silver as an absolute minimum…
I know it might sound dramatic to many people but what is going to happen to the world economy and financial markets will also be spectacularly dramatic. Therefore it is absolutely essential to hold adequate protection.