Why $628 Gold Would Be a Steal

Why $628 Gold Would Be a Steal

Over the weekend, we featured a gloomy, $400 projection in gold that was based on the Elliott Wave work of financial consultant Glenn Hermanson, a Rick’s Picks subscriber. However, applying Hidden Pivot analysis to the same long-term charts, 628.10 is about as bad as we could see. That would imply a further decline of about 8% from the October 24 low and a 15% selloff from current levels. Although that might sound punitive, we’d be inclined to back up the truck at $628, since it could be the last chance gold bugs will have to load up before the dollar sinks into oblivion. And we know this will occur because the dollar is already fundamentally worthless. As we keep emphasizing, it is irrefutably true that the $20 bills in one’s wallet are worth no more intrinsically than the one-dollar bills.

But just try telling that to the New York Times, or to the network news anchors. They’d never take our word for it, but you can bet they’ll turn into believers instantly someday, when America’s foreign creditors decide to pull the plug on the greenback. For now, though, the paradox of a worthless dollar made strong by short-covering is likely to persist. This is another story that pundits, reporters and economists have yet to stumble onto, since the concept behind it doesn’t exactly lend itself to sound-bites. But it is nonetheless true that the dollar has been acting strong because debtors who are used to rolling their loans are being pressed to settle up in cash.

A Tactical Problem

This poses a difficult tactical problem for gold bugs, since bullion quotes are apt to remain under pressure until the moment the dollar collapses in a global epiphany. On that day, our sovereign creditors will implicitly acknowledge what has been true since Nixon closed the gold window in 1971 – i.e., that there is nothing whatsoever behind the dollar.

More immediately, though, we shudder to imagine what will emerge from next weekend’s global economic summit in Washington. The U.S. dollar is unlikely to retain its status as the world’s sole reserve currency, and that implies we’re going to have to pay at least some of our debts with money that is “harder” than dollars. Moreover, by demoting the dollar in this way, our trading partners are creating an exit path whose very existence is bound to hasten its demise. This isn’t something we see playing out over many months, incidentally, but in the space of mere days. As to when it might it occur, like all panics, there will be no drum roll, spotlight or official announcement to prepare us. Would you be ready if it happened this afternoon?