Once Gold Closes Above $1,162 An Ounce, The Lid Comes Off!

There are really only two possible economic scenarios that lie ahead, namely:

Scenario #1: The Federal Reserve’s (and other central banks) efforts to save the U.S. economy and financial system succeed.
They might in the short term but I doubt that they will succeed in the longer term. I also believe the Federal Reserve and other central banks have largely kicked the can down the road for now, and, thanks in large part to China’s economic growth, we are seeing definite signs of economic improvement, all over the globe.

What Happens Next?
The credit crunch affecting homeowners and businesses eases … money flows through the pipeline … and the trillions of paper dollars central banks have created begin to work their way through the system and no matter how hard central bankers try to reign them in, inflation begins to move up quite sharply.

The inflation we will see, however, will be unlike past inflations. It won’t be in wages. It won’t be in real estate prices. It won’t be in the latest tech goodies. It will be fought in the arena of paper currencies versus tangible assets. After all, under this scenario, the trillions of dollars worth of fiat money flooding into the global economy will be chasing fewer and fewer goods in the natural resource sector, pushing their prices inevitably higher.

Obviously, gold will continue to do quite nicely under this scenario.

Scenario #2: Government and central banks rescue efforts fail, economies slump again, sovereign debt defaults steamroll across the globe.
Would that be bearish for gold? No way, Jose! The Fed and other central banks will just keep pumping trillions more dollars into the system, but to no avail, as they’re largely bankrupt balance sheets get exposed for exactly what they are — “Emperors and Empires With No Clothes!”

The greenback will experience the worst decline of all currencies, dramatically losing much of its purchasing power, partly due to the intentional willingness to devalue the currency coming out of Washington, and partly because all currencies will be losing purchasing power.

Gold will do quite nicely under this scenario as well.

How High Will Gold Go?
In scenario 1, I see gold easily hitting my MINIMUM TARGET of $2,300 an ounce, the inflation-adjusted high that would be equivalent to what $850 gold was in January 1980, its first major record high.

Peak Gold Production Has Been Reached
Many analysts are claiming that in either of the above scenarios, gold’s rising price will eventually bring oodles of new supply to the market, hence killing, or at least smothering the bull market for a while but, in fact, the demand/supply equation in gold is heavily tilted toward rising prices, and even far worse than the long-term dire supply picture for oil.

I would even venture to say that the world reached “Peak Gold Production” nine years ago. Consider the following …
The U.S. Geological Survey — a division of the Department of the Interior — recently announced that there are now fewer than 50,000 tons of proven gold reserves left in the ground worldwide and at current mining rates, that means the world will run out of gold within 20 years. Adding to the supply crunch is the fact that big miners are simply not finding world-class deposits. Why? Simple. Because all the elephant-sized gold deposits have already been found.

On the demand side, gold is being gobbled up in record or near record amounts in every corner of the globe. India is the world’s largest consumer of gold but China isn’t far behind with total gold consumption valued at $14 billion in 2009. Indeed, according to a very recent report from the World Gold Council, China’s gold jewelry and investment demand could double in the next decade to $29 billion. In addition, I have absolutely no doubt Beijing continues to buy gold — on the sly — on practically every dip in prices, scooping up gold in many forms, from physical bullion … to gold certificates … and even via the SPDR Gold Trust (GLD).

Why is Beijing buying gold? Plain and simple: it’s the best way China can hedge against the inevitable demise of the dollar. Bear in mind, China only has about 1.6% of its total reserves in gold, compared to 70.4% for the U.S. … and 66.1% for Germany, so if Beijing were to increase its gold reserves to just 5% of its total reserves, that would mean Beijing would buy up nearly 72 million ounces more gold. That alone would be enough to send the yellow metal to more than $2,000 an ounce.

Once Gold Closes Above $1,162 An Ounce, The Lid Comes Off
Gold is inching up on the charts, trading at $1,146 as I pen this issue. On my proprietary trading systems, $1,162 represents a critical area for gold. Once the precious yellow metal — the world’s only real, tangible form of money and wealth — closes solidly above $1,162, the lid comes off. New record highs will be seen soon thereafter.

What if gold rallies to $1,162, but fails to close above that level? No problem. Gold would simply consolidate for a few more weeks or months, between $1,000 on the downside and $1,162 on the upside but I have no doubt that gold will blast off and give me that major buy signal. Just as I have no doubts whatsoever that gold is going to soar to at least $2,300 an ounce, if not higher.

In Conclusion
– No matter what happens in the world today …
– No matter what happens in the markets …
– No matter how good the economic news may be …
– Nor how bad it may become …
– Hold on to all your core gold holdings!
– Why?

Because gold is a win-win investment, and because it’s now knocking on the door of its next rocket ride higher.

*http://www.uncommonwisdomdaily.com/ride-the-gold-market-to-glory-9142?FIELD9=1 (Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com.)