A lot of people think it will be.
In Australia, Gold sales at the Perth Mint rose 194 percent in the December quarter of 2008 as compared to the equivalent quarter in 2007. The mint is working almost 24-7 - three shifts a day for six days a week. Customers are taking possession of $A 500,000 worth of Gold at a time and purchases of $A 10 million or more are becoming increasingly common. The mint has even suspended its sales of Gold bars and bullion coins - except for the one troy ounce "Kangaroo".
In the US, Merrill Lynch is predicting that $US Gold will hit a new all time high (above the $US 1030 intraday high it hit in March 2008) "soon" and will reach $US 1150 by June. Increasingly, customers are insisting on buying physical Gold and are shunning Gold Exchange Traded Funds (ETFs). The median prediction from US analysts is for Gold to average $US 910 an ounce in 2009. Predictions ranged from a high of $US 1200 to a low of $US 780. Given the fact that Gold closed 2008 at a spot future closing price of $US 884.30, the median is a conservative estimate.
On another front, the global hedge book of producing Gold mines had fallen to 585 tonnes at the end of June 2008. That is the lowest total in more than 20 years - since 1987.
And then there is Gold's major "competitor", the US Dollar and US Treasury debt. Many analysts both inside and outside the US are pointing to the HUGE borrowing requirements of the US government over the coming year as the straw that will finally break the US Dollar's back. The Office of Management and Budget has already predicted a 2008-09 fiscal year deficit of more than $US 1 TRILLION, and that does NOT take into account the Obama "stimulus" package universally expected to be somewhere between $US 800 Billion and $US 1.25 TRILLION more. As far as US Treasuries are concerned, Barrons' cover story in their first issue of 2008 was headlined "Get Out Now!" Get out of what? Get out of the "bubble" (Barrons' description) which is the market for US Treasury debt. As one sign of trouble for US Treasuries, Barrons cited: "...the resilient price of gold which has risen $150 an ounce since late October despite weakness in most commodity prices."
We cannot remember the start of any year since the US Dollar and Gold were divorced in 1971 when more people were more "bullish" on the prospect for Gold over the year to come. It is disquieting, to say the least.
Given any amount of comprehension of what is now going on in global financial and political circles in general and the US in particular, it would be very difficult NOT to be "bullish" on Gold. Even if this comprehension was lacking, the mere fact that Gold weathered the commodities bloodbath of the second half of 2008 so much better than anything else is a powerful mark in its favour. On an annual basis, Gold was outperformed by only two other "investments" inside the US over the year just ended. One was the US Dollar itself. The other was US Treasury debt paper.
What is even more interesting is that there is an even bigger chorus than the one in favour of Gold circulating today. This is the chorus warning of the great danger of holding US Dollars and Treasury debt paper in the face of the unprecedented funding demands that the US government will be putting forward this year. Again, this caution is well founded.
As we pointed out here last week, 2008 was the ninth year in the past decade during which the $US "price" of Gold has gone up. But 2008 stands alone because it was the first year since the $US Gold bull market got underway in 2002 during which Gold has gone up in the face of a deflationary bloodbath with $US TRILLIONS being wiped off the valuations of "assets" of all descriptions. 2008 was the year in which Gold proved beyond doubt its quality of preserving purchasing power in the face of ANY type of financial and/or monetary chaos.
Ever since we began these reports well over a decade ago, and long before that in The Privateer, we have been urging the ownership of Gold. The fundamental reason to own Gold is not as an "investment", after all, money is not an investment. Gold should be held primarily as financial "insurance".
The worse the financial chaos gets, the more Gold stands to benefit of course. But at present, the sheer scale of the financial events going on all over the world are confusing most people. In such circumstances, it is very difficult to predict what will happen on the financial markets - ALL the financial markets - in the short term. The present bullishness about Gold suggests the possibility of at least one more fall in "official" (read futures markets) Gold "prices", possibly coinciding with Mr Obama's inauguration, his bailout plan and the huge flurry of new "legislation" which is almost certain to accompany his first weeks and likely months in office.
In the larger context, none of that matters. Gold is still waiting patiently in the "wings", at a $US price today almost exactly the same as it was 29 years ago in January 1980. The eventual "price" of Gold in US Dollars or any other paper currency terms is not the BIG question. The BIG question which may even be answered THIS year is where and in what manner Gold re-enters the global financial system as MONEY.
(Chart appears here in original analysis)
As you can see, a new low was hit on the chart when spot future Gold closed in New York at $US 705 on November 13. This pushed the chart two "Xs" below the $US 715 support level established in late October and equalled early in November. Then came the first big turnaround - and upturn on the chart - of November 14. The region between $US 700-720 firmed as SOLID support for Gold. That support "zone" was emphatically confirmed as Gold rose by just over $US 110 between November 13 and November 28
A month ago,just over half that rise was given back as Gold retreated to the top of its previous distribution zone. That proved to be SOLID support, as shown by the movement on the chart since Gold rebounded from the $US 750 area shows.
We began the table below in 2007 and have extended it through 2008, even though Gold in all four currencies in the table remain well above their 2006 highs. Gold breaking out to new all time highs in $US terms at the end of January led to bull market highs in all four currencies. And as you can see, in March, Gold improved upon those January levels in all four currencies as spot future Gold closed above the $US 1000 level for the first time ever in the middle of March.
In mid (northern) summer, we had a new entry on the table for the first time since Gold topped the $US 1000 level in March. On July 17, Gold rose to 103233 Yen. That was a new 2008 high for the metal in terms of the Japanese currency. Then the Fannie/Freddie bailout plan went to work. On October 8, with the announcement of co-ordinated interest rate cuts by SIX major world central banks (including the Fed), Gold hit new all time highs in terms of the Australian Dollar, the Euro and many other major world currencies. That situation was reversed with the onset of savage global deleveraging which is still going on. How much longer? The US Dollar broke down in the latter half of December. Continue to watch the US Dollar exchange rates and US Treasury yields. When Treasury yields start to rise, the jig is all but UP.
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