Earlier this year gold market analyst John Kaiser made an extremely prescient call by warning Financial Sense Newshour listeners of a gold washout and to expect much lower prices in the months ahead. A week after he made his call, gold fell by its largest recorded amount in 33 years and continued to decline until late June, much as he predicted.
With the washout behind us and gold now moving higher, John believes we hit bottom in late June around $1200 with prices now hinging on emerging markets, especially India.
As he explains, “Americans and Europeans are not the big buyers of gold. Right now, what worries me is India, which has been one of the biggest demand drivers for physical gold; and with their currency going down, the price of gold has been absolutely soaring [and now] the government is instituting import restrictions. So, if we have that support driver taken away…gold may get stuck here in the $1200 to $1400 range.”
Looking out longer-term, John says that to get much higher, gold isn’t dependent upon doom-and-gloom, hyperinflation, or global financial collapse, as many people believe, but, more importantly, on the continued prosperity of emerging markets and their steady diversification out of US dollars.
As he tells listeners, “What I think is really required is a change of perception in what gold is all about. The general view is that you own gold because very bad things are going to happen.” In contrast, John says, gold will gain in value as emerging markets comprise a larger share of global GDP, with the US dollar competing against other currencies, and global central banks needing to hold much larger quantities of gold in reserves.
When asked about whether the dollar is going to collapse in the face of insurmountable debts, John asks, “Whose currency is the US dollar supposed to crash against?” Citing ongoing structural problems facing Europe and China, John asserts that no other currency is poised to replace the US dollar in any radical fashion. Instead, the process of gold accumulation and greater competition amongst currencies for reserve status is an inevitable decade-long trend.
As he explains, investors need to understand that gold’s role is far more than a hedge against currency collapse, doom-and-gloom, or Financial Armageddon—its primary role is to serve as an alternative store of wealth for billions across the globe, whether it be China, India, or elsewhere, as they move up the economic ladder and diversify their savings into one of the world’s most deeply cherished commodities.
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