Thursday, January 1, 2015
Gold prediction of 2015
Inflation, deflation, COT reports, Diwali, Chinese New Year etc have about as much to do with the price of gold as the wart at the end of your nose.
The price of gold has to do with only one thing: Confidence in the global banking system.
Confidence is fairly high right now, 2008 notwithstanding. So gold is at about $1200.
When confidence was very high in 2000 gold was at about $300.
So with the dollar rising, and the stock market high confidence will stay at this level until something rocks that confidence.
What could that be?
Well what could a surging dollar do to disrupt the world economy and hurt confidence?
How about the 9 Trillion dollars in the dollar carry trade that will have to be unwound? What could that cause?
Well, combine the unwinding of 9 trillion dollars of carry trade debt with the leverage of a dollar denominated derivative market at at least 500 trillion: and maybe you get a debt crisis?
How about a Sovereign Debt Crisis? As oil plunges below 50 dollars a barrel, surely a sovereign debt crisis might start in an oil dependent economy. Or an economy that depends on trading with an oil dependent economy? Economies whose own currencies are being torpedoed by their dollar denominated debt...
And Sovereign debt crisis have a way of metastasizing. Wherever they start they tend to affect banks everywhere. Here are some candidates for 2015:
1) Sovereign debt crisis starting in Russia
2) Sovereign debt crisis starting in the Eurozone.
3) Sovereign debt crisis starting in Japan.
4) Sovereign debt crisis starting in the Emerging Asian Economies.
5) Sovereign debt crisis starting in the emerging South American Economies.
What happens next?
6) Well how about a stock market that has climbed for 6 years on easy money getting spooked by a sovereign debt crisis?
7) How about with a spreading Sovereign Debt Crisis and a falling stock market the Fed Reversing its Tightening?
8) Then where will confidence in central banking be?
9} I'll bet a whole lot lower.
9) Then the price of gold will go a whole lot higher.