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$5,000 Gold Coming Soon
By James DiGeorgia, editor of the Gold and Energy Advisor
Thursday - June 4, 2009
With the chaos in the world's financial markets and the continuing danger of terrorism, including physical gold in your retirement portfolio is the most prudent thing an investor can do. Apparently, this is the direction that many people are starting to take. The World Gold Council recently released its 2008 Gold Demand Trends report. Investment demand for gold was up a whopping 64 percent for the year. The average gold price was $872, up 25 percent from the previous year, and today it's up even more. Demand for bars and coins shot up by 87 percent. This explains the massive shortage of gold bullion that started last summer (and continues today).
While demand is up, quantity is down. There is a massive global shortage of gold. The United States mint has run out of Gold American Eagles. They made the announcement last month, saying production of United States mint American eagle gold proof and uncirculated coins has been temporarily suspended because of unprecedented demand for these bullion coins. Additionally, they added that as a result of the recent numismatic product portfolio analysis, fractional sizes of American eagle gold uncirculated coins will no longer be produced.
Meanwhile, the US government bailouts have hit $12.8 trillion. The current administration's economic plans will increase our debt by a staggering $9.3 trillion over the next decade. Then add to this China's pending move away from the dollar, and I expect we'll see a rocket lit under gold demand this year.
China has about $2 trillion of reserves. Only 1 percent of it is in gold. When the dollar starts to reflect the massive devaluations going on in Washington, the Chinese are going to take staggering losses in their reserves. They've warned repeatedly that when that day arrives, they'll move to other assets instead. If China moves even a small percentage of that $2 trillion into precious metals, the markets will go berserk. I wouldn't be surprised to see gold explode up by $100 or more per day, for multiple days in a row. Will this happen? Well, ask yourself something: would you want to be holding $2 trillion in greenbacks right now, with everything that's going on in Washington? This is a very interesting time to be a gold investor.
A surprising new development will accelerate this even further. All of a sudden, the world's tax haven nations have started buckling under pressure from the US and Britain. They're violating centuries-old banking traditions, and giving up financial information on depositors who are accused of being "tax evaders." Switzerland, Andorra, Austria, Liechtenstein, Luxembourg, Singapore, and Hong Kong have all pledged to go along with this. British Prime Minister Gordon Brown has gloated that this is "the beginning of the end for tax havens."
The world's wealthiest individuals and entities have long counted on offshore accounts for privacy. Now this protection is gone. Any account can, and will be exposed to government scrutiny on a tax official's whim. What will be the result of this? Even if someone complies with all tax laws, and just uses offshore accounts for privacy, this is ominous news. In today's political environment, being wealthy automatically puts you under suspicion of "not paying your fair share." When even death is a taxable event, a large bank account suddenly coming to light will be irresistible to an IRS official who's been told to crack down on "evaders." The rich people in this world didn't get wealthy by being stupid. They understand what's going to happen as a result of this. No doubt, they're looking for alternative ways to store their wealth right now.
Banks are no longer an option. Nor is any kind of registered accounts: stocks, bonds or money markets. So what's left? Real estate? No—its ownership isn't private. Fine art? Not if you don't have world-class expertise, otherwise you'll get ripped off. Diamonds? No, they aren't fungible. Crude oil? No—too bulky to store. Only precious metals can truly meet this need. They're the only one asset class that's not only private, but also liquid, portable, fungible, divisible, and valuable enough that a small amount can store a massive amount of wealth. And of these, gold is the best.
According to the Tax Justice Network (an independent group based in London), some $11.5 trillion is squirreled away in offshore accounts and other assets. If even one percent of that were transferred into gold, that would be almost four times the entire annual investment demand for gold. The impact this would have on gold's price is obvious!
$2,500 gold in the short term is quite possible, and don't be surprised to see this glittering metal go for as much as $5,000 in the next few years. Unlike stocks, bonds and currency, gold has withstood the test of time as an investment. Even in periods of deep recession, depression, war and economic turmoil, people who owned gold not only survived, but prospered and made money.
James DiGeorgia is editor of the Gold and Energy Advisor (http://www.goldandenergyadvisor.com) and author of the book "The New Bull Market in Gold: $5,000 Gold and the Many Ways to Profit from It." To receive a $1 trial subscription to the Gold and Energy Advisor and a free copy of the book, visit http://goldandenergyadvisor.com/page/gez/subscribe/index16.html?x=press-06
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