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Status of Gold

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Status of Gold

Gold and silver are two commodities that have long been used as money throughout the history. The history of gold is explained in detail in Chapter 13. Here, we would like to check the chart of gold, called XGLD in TC2000.


         Figure 17.21   (Charts courtesy of TC2000.com)

Figure 17.21 shows an 8-day chart of gold from 1994 to September 23, 2017. In the early phases of chart, gold was in a bear market and developed a double bottom W-type trend reversal with a bottom price of 251.70 on August 25, 1999, and then with a low of 252.60 on February 20, 2001. After the second bottom, it rallied until September 6, 2011, to reach an all-time high price of 1920.80.

Since September 2011, it is developing within a down trending channel although is seems to have recently broken through the resistance line upwards.

Once the stock market starts the predicted crash, Gold should rally for a few months but later on, it is expected to temporarily crash like all commodities due to deflation and depression. This is the way it behaved in 2008.

Gold should find support in the area of crash of 2008 in the range of 650 to 975. Once it has bottomed, gold is predicted to start an historical rally towards a price of $10,400 an ounce while other markets continue their plunge until October 21, 2021.

From monetary policy viewpoint, Governments need high inflation to contain the burden of their debt over time. However, the numerous world Quantitative Easing programs since 2009 have so far failed to achieve the central bankers’ even mild target of two percent inflation. And the currency war is still going on. 

Currently, one way the governments can import a massive amount of inflation would consist of resetting the world monetary system through a worldwide agreement like the one of Bretton woods in 1944. The IMF and richest central bankers could decide to back their currencies by gold and fixing its price to some $10,400 per ounce over a week end. Central bankers would then be buyer of gold at $10,350 and seller, at $10,450. This would then result in an immediate inflation of some 770 percent (this assumes the current price of gold of approximately $1,300). The price of gold at $10,400 is not an empiric assumption. Currently the amount of world currency notes in circulation is around $26 trillion and the volume of gold approximately one billion ounce. By assuming a 40 percent backing by gold, the price of an ounce of gold would become (26,000 billion x 40%) / 1 billion ounce of gold) = 10,400 (raw figures are approximations).

This decision would result in transferring the buying power of currency notes to central banks. It would then result in making the central bankers with highest amount of gold as the richest in the world.

Practically speaking, this measure would devalue the buying power of dollar by some 770 percent.

From chapter 13 of the book, we know that in January 1934, the Federal Reserve decided to increase the price of gold from some $20 to $35 overnight, hence creating an inflation of over 60% immediately.
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