On Friday, we introduced our views that the price (in US Dollars) of gold will rise in 2012, but also shared our belief that the price could certainly see a severe correction in the event of a world wide liquidity crash. The world powers are doing their best to print enough money that this won’t be a problem and the crash could certainly not be a “liquidity” even where people sell anything they can to raise capital. However, it could happen, so today we cover the dangers of waiting for that to buy into gold.
It is certainly conceivable that there will be a liquidity crash in all markets like there was in late 2008. In this case, the price of gold in USD could end up lower at the end of 2012. In 2008, the price of gold dropped precipitously with other asset values, however, it was one of the first to rise and it had begun a strong recovery at the end of the year (and ended up on the year) while the stock markets needed a few more months to recover. This could happen again and offer an excellent buying opportunity. Since we expect a huge crash within the next couple years, it could possibly be a really bargain price.
But there’s two things to consider here…
1) It might not happen. When the US Dollar finally crashes, the price of gold will skyrocket. Could the next crash have that component to it? If so, you would have been a fool to be waiting on a lower price for gold because the value of your assets would be evaporating while the price of gold skyrockets.
2) What if the paper price is low, but you can’t get your hands on the actual metal at that price? Another thing to consider is that the price of gold is heavily manipulated by the Western governments and banks (not as much as silver’s price is, but it is still heavily “managed”). We’ve talked about this in great depth previously, so here we’ll simply state it as a fact. The governments probably want the price to rise, but not too rapidly. The way they do this is by trading on paper markets which are only backed by a small fraction of the amount of gold that is traded in paper. When this system finally collapses, it will be because the true market price of real metal has completely divorced itself from the paper price traded on COMEX or LBMA. If this happens while you’re trying to buy gold, you’ll find that you’re only able to buy into one of the phony gold products that are so dangerous. Thus, the “low price” won’t be a real price that will help you. Again, we don’t know when this will happen, but based on what’s going on in the markets, it’s sure to at some point in the next few years.
A much better position to be in is to have enough gold so that if the USD drastically declines and gold skyrockets, you come out ahead. But also that you have enough cash (in a variety of currencies perhaps) to buy into the dip such an event would offer.
This is the 16th post in a series. You should read the initial thoughts on these forecasts here. and the Overall Prediction Page here. Here are the rest of the posts: 3) Ben Bernanke’s Dollar Devaluation Plan, 4) The Coming US Dollar Devaluation, 5) Stock Market Volatility, & 6) Stocks to Fall in 2012, 7) The European Crises, & 8) European Options, 9) European Prediction, 10) Recession in Japan, 11) Japanese Yen Crash,12) War with Iran, 13) Jewish Perspective on Iran, 14) Commodities to End 2012 Lower, 15) Where Will Gold Go Next?, & 16) Gold, Should you Wait?