A bubble in gold?

By Hans Lysglimt

I have still not called for shorting. I have called selling, but shorting still seems to risky. The false rally is still going on. Easy money is finding it’s way into securities. But the real economy is still contracting; the panic of 2008 has brought about a real change in attitudes. Americans are saving again as they realize they will have to be more self sufficient towards their retirement. Government retirement schemes in the western world are broke, they will break within the retirement age of anyone who’s under 50 today. As more and more people realize this they will save ever more. Problem is though that their “savings” go into governments, who are soaking up savings at an unprecedented rate. They are saving into the deficit of their own governments. This of course is not real savings; this is not savings into capital that make us more productive. This is saving into government spending, that future generations will have to pay back. This can not go on, this is not a sustainable way to bring about prosperity. Something has to give, and something surely will.
Here at Farmann we see it as our main job to analyze what will give, and how it will happen. We wish our job was different, and under a pure gold standard our job would have been very different. We would have time to ponder on more long term philosophical issues of life, and the economy. But as it is, with the Keynesian madness of short term manipulation of the markets we are forced into the same short term thinking as they are – if nothing else then just to dodge the bullets.

Gold fell under 1000 again Friday and is now trading at 988. There were some warnings of bullion bank shorting above 1000, and several sell recommendations. We even considered selling, to reenter at below 1000 prices. But we decided not to, you see part of the point of owning gold is to have peace of mind and sanity in a crazy monetary world. It is having your feet on solid ground in a sea of madness. If one should try to time this on a week by week basis, that defies the whole point. We are in this for the long haul, and we are confident we will see gold at 2000 soon enough.

We can’t stress enough thought that YOU are responsible for yourself, including your own mental sanity. The way to do this is to insulate yourself from the madness of the collectivist and the governments.

We have been sketching up a new article for LewRockwell.com, as we have been thinking about how the FED and the other central banks will go about to remove the excess liquidity it has become apparent to us that they won’t. They won’t have to, the new liquidity is here to stay as we see it now, we even see more of it – lot’s more of it. The only constraint they have is inflation, and there are ways they can control inflation and still print money. We see massive new quantities of money coming up. More on that shortly.

How do you play this new money then? Right now the markets are pouring it into equities, but sooner or later real profits will catch up. The S&P P/E is now over 200, this clearly can not go on. There will be a massive correction in the equities markets. Our belief is that the new liquidity will eventually pour into new bubbles of assets that have few restraining checks on them. On obvious bubble right now is in government bonds, the interest rates can’t go much further down – but the upside potential is enormous. It could be real estate once again, but we doubt it due to the crash, it could be – and is into China equities as the proof there is still years in the future, or it could be something less auditable like art, intellectual property rights, trademarks, internet mindshare or something similar. Our favorite candidate however is precious metals, we see a potential for a boom and even a bubble in gold and silver. The natural price of gold should be way way above the current approximately 1000 dollars, by some calculations of the monetary base it should be 38 000 dollars. But, you could still potentially have a bubble that would drive the price way above what it “should” be. Most bubbles go into excess anyway. USD 100 000 gold? It’s not impossible.

Hans Lysglimt
Oslo, Norway
September 28, 2009

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