Gold: The Most Likely Scenario Going Forward

Posted by Larry Edelson - Uncommon Wisdom

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Gold Headed to $62,238 or Even $84,131 an Ounce?

I have some important ground to cover with you today, in this special column. So let me get started right away — and with a warning I want to get on the official record:

No matter what happens in the world today … no matter what happens in the markets … no matter how bad the economic news may be … nor how good …

And despite the fact that I remain short-term bearish and see gold’s price falling a bit more …

Hold on to all your core gold holdings!

That’s especially important for you to understand today because, very simply put, I believe that gold is a win-win investment. Period.

First, and foremost, there are really only two possible economic scenarios that could unfold going forward …

Scenario No. 1: [LEAST LIKELY]

The current spate of bad economic news abates … the stock market’s recent rally continues … talk of a double-dip recession recedes … the U.S. economy begins to truly recover.

All looks hunky-dory. Even in Europe.

The Federal Reserve’s efforts to save the U.S. economy and financial system succeed.

So what happens next under this, albeit least-likely, scenario?

  • The credit crunch affecting homeowners and businesses starts to ease …
  • Banks start lending more money … credit flows through the pipelines … the government’s revenues increase … the sovereign-debt crisis eases …
  • And the trillions of paper dollars the Federal Reserve has created begin to work their way through the economy.

In a year or less, normal credit creation has fully resumed. Our fractional reserve-banking system takes over and begins multiplying the lending again, up to $9 for every new dollar of money created by the Federal Reserve.

Up to $20 trillion of largely watered-down money begins to flood the U.S. economy. More than double the country’s current Gross Domestic Product.

And because it is money that had no reason for existence to begin with … and is merely monopoly money printed up by the Federal Reserve, guess what happens?

Inflation takes off to the upside like a bat out of hell. And no matter how hard the Federal Reserve tries to reverse its policies and reign in the inflation, prices for almost everything begin to move up sharply. Very sharply.

Obviously, gold will continue to do quite nicely under this scenario. How nicely? I’ll tell you in a minute. First, consider …

Scenario No. 2 [MOST LIKELY]:

The recent slew of bad economic news continues … the U.S. economy goes from bad to worse … Europe goes into meltdown mode …

And it becomes painfully clear that Europe’s and the U.S. governments’ and central banks’ rescue efforts have failed.

Here and in Europe, it becomes clear that governments are broke. It becomes obvious we’re dealing with depressions.

The Fed and the European Central Bank pump trillions more dollars into their economies. But all to no avail.

What happens under this scenario? The euro and the U.S. dollar race each other to the bottom of the heap of paper currencies that have failed.

Both currencies dramatically lose purchasing power … and the entire Western world sinks deeply into an inflationary depression.

The world’s monetary system is effectively destroyed, and collapses in a quagmire of debts that can never be repaid.

The Bottom Line for Gold …

In Scenario No. 1, I see gold easily hitting my MINIMUM TARGET of $5,000 an ounce. No doubt about it.

But in Scenario No. 2, gold could easily exceed $5,000 an ounce. How high it could go then is anyone’s guess. $7,000. $8,000. $10,000-plus?

It’s hard to say. But I do know this: If the Fed opted to monetize our country’s 261.498 million troy ounces of gold reserves and gear it to the current national debt of $16.375 trillion …

Then you’d be talking $62,237.56 gold.

And if it decided to go even further and monetize, say, just 10% of the country’s total debts and obligations, roughly $22 trillion, you could be talking about $84,130.66 gold.

Do I think gold will get to either one of those numbers? No, I don’t.

But the exercise does prove that no matter how you look at it, gold is ultimately headed higher — much higher. And $5,000 an ounce could easily end up a very conservative figure.

Hence, gold should be your No. 1 insurance policy going forward. Don’t you forget it.

Whatever you do, hold on to your gold holdings, or you’ll be sorry you didn’t. And if you don’t own gold, for whatever reason, get ready to start backing up the truck.

Yes, I was bullish on gold from 2000 to its 2011 high at $1,925. And then, I called for a correction, which unfolded precisely on cue.

And although gold could fall a bit more in the short term, time is running out for gold’s correction. It won’t be long before I issue my first major buy signal in gold since the year 2000.

Best wishes,

Larry

Larry Edelson has over 34 years of investing experience with a focus in the precious metals and natural resources markets. His Real Wealth Report (a monthly publication) and Power Portfolio provide a continuing education on natural resource investments, with recommendations aiming for both profit and risk management.

For more information on Real Wealth Report, click here.
For more information on Power Portfolio, click here.