STRONG correlation between debt ceiling and gold price - gold to surge to ~ $ 1950

[swissaustrian]

From our friends at zerohedge:

The Imminent $2.5 Trillion Debt Ceiling Hike Will Unleash A Gold Price Surge To $1,950 And Higher
Two weeks ago we presented a chart that shows the uncanny correlation between the debt ceiling and the price of gold. Now that we know the final amount of the next debt ceiling hike, somewhere in the $2.5 trillion ballpark, it allows us to extrapolate where gold will end up as a result of the debt ceiling hike which will likely be voted into law at 7pm PDT. A simple correlation rule of thumb allows us to predict that gold will be at $1,950 by the end of the year if it simply retains it close correlation to the debt ceiling. Should Bernanke announce that he will additionally need to monetize some or all of this incremental debt amount, we anticipate that gold will be well over $2,000 by the end of the year, courtesy of yet another round of accelerated dollar debasement, which also means that real gains in US stocks will be negated courtesy of the devaluation of the currency in which they are priced. The same, however, does not apply for gold, which with every passing day is priced in nothing but itself.


http://www.zerohedge.com/news/immine...950-and-higher

Protect yourself accordingly!

[Seraphim]

I'm expecting 60$-70$ silver as well.

[swissaustrian]

I'm expecting 60$-70$ silver as well.

Me too.
But in the short term we could see a minor decline in pm prices until qe3 will be announced. I think this could happen in 1-2 months. The Jackson Hole meeting is in 3 1/2 weeks, this could be the date for the announcement.
So maybe we get another buying opportunity in the next month(s)? Historically pm prices fell a little bit right after the debt ceiling hikes (see e.g. 7/2006 and 7/2008).

[Zippyjuan]

Not always. The chart does not go back far enough. Prior to about 2001, the price of gold was declining basically every year for the previous 20 years straight. Did the debt ceiling get lowered during those years? It certainly could rise with the debt ceiling- but doesn't have to. If economic uncertainty continues, then the price of gold probably will rise more. If things stablize, it could stop its rise or even decline.

[swissaustrian]

Not always. The chart does not go back far enough. Prior to about 2001, the price of gold was declining basically every year for the previous 20 years. Did the debt ceiling get lowered during those years? It certainly could rise with the debt ceiling- but doesn't have to. If economic uncertainty continues, then the price of gold probably will rise more. If things stablize, it could stop its rise or even decline.

You´re right, zippy. Uncertainty is a contributing factor. But i´m sure uncertainty is going to stay for a while. So is money printing.
But during the late 1990s gold was even more heavily manipulated than today. Additionally central banks were net sellers. They also flooded the market with gold leasing offers.

[cubical]

Not always. The chart does not go back far enough. Prior to about 2001, the price of gold was declining basically every year for the previous 20 years straight. Did the debt ceiling get lowered during those years? It certainly could rise with the debt ceiling- but doesn't have to. If economic uncertainty continues, then the price of gold probably will rise more. If things stablize, it could stop its rise or even decline.

I was thinking the same thing. While I do believe the charts have become correlated somewhat, I would bet there are a few assets your could put in place of gold an the chart would look similar. MLPs come to mind, though I haven't really looked at it.

[cubical]

Me too.
But in the short term we could see a minor decline in pm prices until qe3 will be announced. I think this could happen in 1-2 months. The Jackson Hole meeting is in 3 1/2 weeks, this could be the date for the announcement.
So maybe we get another buying opportunity in the next month(s)? Historically pm prices fell a little bit right after the debt ceiling hikes (see e.g. 7/2006 and 7/2008).

We have been saying this on here for more than a few months. I think if there was going to be a "big" correction due to the end of QE, it would have happened.

[Seraphim]

The big correction already happened (largely in silver).

By mid August the seasonal bull will starting bucking hard until Jan 1st 2012.

[swissaustrian]

I was thinking the same thing. While I do believe the charts have become correlated somewhat, I would bet there are a few assets your could put in place of gold an the chart would look similar. MLPs come to mind, though I haven't really looked at it.

Real (inflation adjusted) interest rates are inversely correlated to gold prices: http://www.gata.org/files/gibson.pdf
M3 seems to have a strong correlation too:

[Mogambo Guru]

Not always. The chart does not go back far enough. Prior to about 2001, the price of gold was declining basically every year for the previous 20 years straight. Did the debt ceiling get lowered during those years? It certainly could rise with the debt ceiling- but doesn't have to. If economic uncertainty continues, then the price of gold probably will rise more. If things stablize, it could stop its rise or even decline.

This is the same "type" of speculation you tried to debunk in the previous sentences... There wasnt much "economic uncertainty" from ~2001 to 2006-2007ish... From the banks/economists/governments/personal perspective most people thought the economy was booming and on track, yet gold was rising steady.

Kinda throws a wrench into the "economic uncertainty" theory, IMO.

I believe the stagnation of gold prices from the 80's to the 2000's was psychological as much as anything. We had only just fully adopted the dollar standard without gold backing on a national level, and we were the economic power house still producing many goods. Economists and central bankers had convinced themselves and the academic world that gold was holding us back and we went on a debt binge ever since.

Over time though we eroded away our productive capacity and replaced it with debt, kinda sneaking it past everyone about how bad our situation really was(and still are today)...

We have tweaked and adjusted the way we measure things to justify what we are doing, and the smoke and mirrors game is starting to end. I dont now how long it can go on for, but it is no doubt on the decline, IMO.

[Bern]

I will be surprised if $2000 gold and $60 silver isn't seen by the end of the year.

[Bern]

One day doesn't make a trend, but today's market action sure doesn't throw any cold water on the OP's assertion.

[cbc58]

the price of gold is getting very close to what I can buy good farmland for per acre (20 acres or more).. hmmm what to do...

[Bern]

Wait for the blood in the streets. /Baron Phillipe Rothschild

[Kelly.]

the price of gold is getting very close to what I can buy good farmland for per acre (20 acres or more).. hmmm what to do...

where can one buy good farm land for $2k an acre?

[swissaustrian]

the price of gold is getting very close to what I can buy good farmland for per acre (20 acres or more).. hmmm what to do...

Be careful:
http://www.businessinsider.com/rober...-bubble-2011-3
http://www.bloomberg.com/news/2011-0...bble-sign.html

[raystone]

Be careful:
http://www.businessinsider.com/rober...-bubble-2011-3
http://www.bloomberg.com/news/2011-0...bble-sign.html

LOL, from the first link...

"Shiller also believes a bubble may be forming in commodities, driven both by weather conditions and changes in demand. He doesn't see bubbles in either stocks or housing happening anytime soon."

This guy Shiller may be proven wrong before even before his blog is indexed by Google.

Where can you buy good farmland for 2k an acre??

[swissaustrian]

America Maxes Out Its Credit Card Again - Treasury To Raise Debt Limit By Another $1.2 Trillion On December 30You didn't think US consumer confidence could be bought for free now did you?
U.S. TREASURY SAYS DEBT LIMIT TO BE RAISED BY $1.2 TRILLION
U.S. DEBT TO BE $100 BLN WITHIN LIMIT ON DEC. 30, TREASURY SAYS
STEPS FOR INCREASING DEBT LIMIT UNDER 2011 BUDGET CONTROL ACT
And the piece de resistance that 100% debt to GDP brings:
OBAMA ON DEC. 30 LIKELY TO ASK CONGRESS TO RAISE DEBT LIMIT
Just as we thought the circus was over if only for a few weeks...

http://www.zerohedge.com/news/us-hit...on-december-30

You know what to do: BTFD

[xFiFtyOnE]

http://www.zerohedge.com/news/us-hit...on-december-30

You know what to do: BTFD

Time to place another order. :P