What
I Think Will Happen to Gold Prices after the Election By
Patrick A. Heller, Market Update
November 04, 2008 - Numismaster
All
year, I have been repeatedly asked, "Who do you think
is going to win the presidential election?" My stock
answer has been, "Nobody." After briefly considering
my response, most people have said something along the lines
of "Unfortunately, you are probably right."
Barring any extreme legal difficulties, the
election results should be available by early Wednesday morning.
Democratic presidential candidate Barack Obama appears to
have enough of a lead in likely electoral votes that he will
probably win.
From the perspective of gold, does it really
matter who is the next U.S. President? Contrary to what all
the candidates try to tell us, I don't think it really matters.
The U.S. economy is ultimately dependent on
activity in the private sector. The government cannot create
any assets. It can only gain assets through taxing, borrowing,
confiscating, or surreptitious theft through inflation of
the money supply. As I see it, if the government interferes
with, or burdens the private sector, it actually reduces total
available wealth. The greater the burden of government, the
less wealth there will be to share.
The wonderful attribute of the United States
of America is that, to an extent beyond that practiced in
any other nation, the government was minimal and had the least
effect on the lives of private citizens. As a result of this
relative freedom, Americans became the wealthiest people in
history, setting a shining example to be copied elsewhere.
The burden of American government has grown
larger over the years. As new laws and regulations damaged
the economy, the usual government response has been to enact
even more laws and regulations rather than eliminate the source
of the original problem.
The culmination of all the government regulation
of the private sector has resulted in the current horrible
global financial mess. Over the past few months, the various
efforts by all governments have eventually made the problems
worse, not better.
The essay by Steve Forbes in the Nov. 10,
2008, issue of Forbes details this process much better than
I can cover here.
The financial condition of the country is
sometimes so poor that the government statisticians have,
over the years, changed how different financial data are reported
to disguise how bad matters have deteriorated.
John Williams of www.shadowstats.com converts
current government financial reports into data derived by
the same methodology formerly used by the U.S. government.
In his latest analysis, he indicates that the current rise
in consumer prices is nearly 14 percent annually, the M-3
money supply is increasing at almost a 14 percent rate, the
unemployment rate is 15 percent and the Gross Domestic Product
is falling by 3 percent.
All of this poor economic news along with
the guaranteed rampant inflation from the recent bailouts
has scared private citizens and foreign governments and central
banks to want to bail out of the U.S. dollar. Gold has been
one of the safe haven alternatives that many have purchased.
Knowing the widespread fear about owning U.S. dollars and
dollar-denominated paper assets, the U.S. government and its
partners have clobbered the price of gold since mid July.
The new U.S. President faces an economy on
the brink of depression. I just don't see that either the
Democratic or Republican candidate accurately understands
the underlying problems that have caused this economic mess,
or have the political will to press for the reduction in government
burdens that it would take to get beyond these crises.
Instead, I expect the new President to press
for more government actions. These will have the unintended
consequences of increasing inflation and unemployment in the
United States, crippling exports, crushing the value of the
U.S. dollar compared to other currencies, and bringing on
the worst depression in U.S. history. Different candidates
might take different actions that speed up or slow down the
process, but I don't see how the ultimate result will be different.
To give one example of what I mean - On Oct.
7, the House Education and Labor Committee (Rep. George Miller,
D-Calif., chair) held hearings on "Saving Retirement
in the Face of America's Credit Crises: Short Term and Long
Term Solutions.
One speaker, economics professor Teresa Ghilarducci
of the New School for Social Research, advocated that the
federal government nationalize 401(k) and other private retirement
account assets and replace them with government bonds paying
3 percent interest.
I have warned of this possibility for years.
Don't be surprised if this idea turns into proposed legislation
in 2009. This potential seizure of precious metals IRAs as
part of confiscating all assets in private retirement accounts
makes a strong case for owning gold and silver outside of
retirement accounts. Even the introduction of such a bill
into Congress would be enough to cause major upheavals in
the economy.
Despite what the new U.S. President might
do, I expect the price of gold (and silver) to rise to levels
so high that it is difficult to believe. At the minimum, I
expect gold to reach $2,000 by the end of 2009. It could go
much, much higher.
The availability of physical gold continues
to be extremely tight. It is still almost impossible to find
any coins or ingots for immediate delivery and premiums are
at their highest levels in the past 30 years.
Premiums have been high enough for so long,
that it does look like some supplies are starting to come
onto the market. I would not be surprised to find supplies
becoming available faster and at slightly lower premiums in
the next couple of weeks. However, I also think there is a
great risk of much higher gold prices in a few weeks, so it
may be better to purchase your gold now.