Almost all analysts of the gold market that take into account what is really happening behind the scenes are optimistic that gold prices are headed much higher in 2010 or 2011 at the latest. Many, including me, expect to see gold top $1,500 before the end of this year.
Along with others, I think there is a solid possibility that gold could even reach $2,000 by the end of 2010 or early next year.
There are even more radical forecasts. When Bill Murphy, the chairman of the Gold Anti-Trust Action Committee spoke last month at the American Numismatic Association National Money Show in Fort Worth, the title of his speech reflected his anticipation that the price of gold was going to $3,000 to $5,000.
I consider it entirely possible that the value of the dollar may depreciate so far relative to gold that the price of gold could go to eye-popping levels against the US dollar. Even as I say that, I don’t think there is any chance that the price of gold could reach US $5,000 per ounce by the end of 2011.
For gold to reach that level in the next 20 months, that would imply that the value of the US dollar would have to drop by more than 75%! Long before the dollar would fall so much that the price of gold reached $5,000, the US dollar would cease being the mainstay unit of account for international commerce. Once the dollar was no longer wanted by foreigners, a flood of currency and US-dollar denominated assets like bonds would flood back into the US. This would have the effect of accelerating the decline of the dollar.
So, long before the price of gold could rise to $5,000, I would expect the dollar to collapse. If the US government did not also collapse in conjunction with the failure of the currency, then an entirely new monetary issue would be created. Should the US government be unable to create its own new circulating medium, as happened to Zimbabwe’s government in 2009, the free market will establish its own standards. Whether the replacement monetary system is created by the US government or by the private sector, I am confident that the use of gold or silver would be necessary to establish credibility and stability.
Should the US dollar be in such dire straits that it might threaten to reach $5,000 by the end of 2011, there would certainly be many other problems in the US. There could be civil unrest on a scale greater than anything seen since the Civil War. The consequences for the standard of living for many Americans may be devastating.
We can only hope, if things deteriorate that much, that the populace would respond as relatively peacefully as they did in Indonesia in 1997. Although Indonesians fortunate enough to own gold or silver managed to largely sustain their previous standard of living, most citizens held only paper money and were wiped out. Despite the overall financial calamity, Indonesia survived in comparative calm.
Even a few members of Congress have privately stated that the debt and liability burden of the US government, now more than $100 trillion dollars on an actuarial basis, is so large that we are past the point of ever being able to save the US dollar. I wish they were wrong in this assessment, but I am fearful that they are right.
Patrick A. Heller owns Liberty Coin Service in Lansing, Michigan and writes “Liberty’s Outlook,” a monthly newsletter covering rare coins and precious metals. Past issues can be found online at http://www.libertycoinservice.com/ Pat Heller is also the gold market commentator for Numismatic News. Past columns online at http://numismaster.com/ under “News & Articles”. His periodic radio interviews can be heard on WILS 1320 AM in Lansing, www.talkLansing.net, and on www.yourcontrarian.com.