Have I gone crazy?
For a year now I’ve been urging you to sell your gold… to get out because the precious metal is up the creek without a paddle… heading straight for the waterfall that will dump prices all the way back down to $750 an ounce in the years ahead.
And just two weeks ago I told you how gold “finally gets it.”
Now I’m telling you to buy gold?
Have I lost the plot?
In fact, I’m more convinced than ever that gold prices will hit the $750 target I’ve been forecasting. Lower actually. Think $250 an ounce by 2023.
But, as I always say: Nothing in the investment world moves in a straight line. And right now I expect gold to take one last gasp before rolling over for good.
Let me explain…
Gold is an inflation hedge. It will ultimately crash when deflation sets in from an inevitable debt deleveraging.
However, since late 2008, gold surged every time major governments announced more money printing to fight the very persistent economic slowing that we’ve predicted for decades.
In The Great Depression Ahead (2008), I argued that the greatest debt and financial asset bubble in modern history would ultimately have to deleverage, destroying dollars and creating price deflation, just like in the Great Depression of the 1930s. This would cause the U.S. dollar to rise and gold to fall. It happened that way in the 1930s Great Depression. It happened in late 2008 in the last financial meltdown. It’ll happen again.
But after aggressive quantitative easing (QE) from the Fed in mid to late 2012, and then an off-the-charts QE program in Japan in early 2013, gold collapsed suddenly as leveraged hedge funds were forced to sell to cover margin calls – much as they did with oil in late 2008.
The thing is, that was only part of the reason gold lost around $170 of its shine in just two months.
The other reason is three words: India. And. China.
You see, the biggest buyers of gold are not central banks, or the U.S. or even European consumers. They are Indian and Chinese consumers.
Look at this chart…
Yes. You’re reading that chart correctly. Chinese and Indian consumers account for 52% of gold purchases! The vast majority is for jewelry, not investment. Look at China. Chinese currently buy 324 tons of gold a year. Indians buy as much as 283 tons.
Both dwarf U.S. consumers who only buy 43 tons of gold a year… or Germans, who buy a mere 21 tons.
This really isn’t that surprising. Have you ever been to India? People wear gold jewelry on their ankles and feet, not just their wrists and necks! It’s a major show of wealth, especially if you don’t have any.
Indians are the best dressed poor people I’ve ever seen, with their colorful and very tasteful cotton saris. Women even work in the fields in these beautiful garments.
But in 2012, the Indian rupee lost value. Suddenly, it cost Indians substantially more to buy their gold… and many no longer could. Gold purchases went down by almost 40% in 2012, for the first time in many years.
Here’s the thing…
With gold prices falling recently, purchases by Indians and Chinese are going back up – they’re up by 50% in India – because it’s become affordable again. And that’s why we’ll see a brief bounce in gold ahead.
That’s why I’m telling you to buy gold, but only for a short-term move.
But you must be ready to sell it again when this brief bounce ends… something that’ll happen as the vicious circle currently draining growth from China, emerging markets and commodity markets finally becomes unstoppable.
Gold traded in a range between $1,525 and $1,800 for two years after its bubble-like advance from late 2008 into late 2011. I believe it could retest that $1,525 level. Then it will head for $740 by early 2015… and possibly as low as $250 by 2020 – 2023, where it last bottomed in 1998.
Gold is NOT your protection against the next global financial crisis. It wasn’t your protection during the 2008 crisis either.
You can love gold, you can even profit from it when it occasionally bounces on its way to the bottom, but you’d better think about this precious metal differently in the years ahead.
Ahead of the Curve with Adam O’Dell
Copper, like gold and most other metals, has endured a long decline after peaking in early 2011. And it’s made for a great trend-following trade for bears… really any investors who have been willing to trade on the short side of these markets.
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