On January 8th, I published Why the price of gold skyrocketed and why it’s over! I’m beginning to see (finally) some acknowledgement that the price of gold inflated by the fear that a collapse in the global financial infrastructure was imminent, is rapidly losing its lustre.
The price of gold has fallen 20% from its peak, and on CNBC the talking heads are asking: ‘Is it time again to buy gold?’
Because the price of gold is more volatile than a manic-depressive without meds, it’d difficult to determine how low (or high) it can go. Why am I sure it can go much lower? I was at Arizona Bike Week and saw some jewellery (biker stuff…skulls and such). I noticed that a sterling silver ring was selling for $300, but a solid gold one was nearly $5000. Now if I wouldn’t even consider buying the gold ring after several JD shots and beers (and the Doobie Brothers performing a few feet away) then it’s obvious that the gold/silver ratio is out of whack.
As I type this, gold is $1424/oz. and silver is $23/oz. Therefore the ratio of gold to silver is >60. I find that 40 to 1 has got to be coming (no real reason, why not?) suggesting a target price for gold of $920/oz.
But wait. If silver is in such abundance, and the global financial system stabilizing with each passing day, should we not assume a more modest silver price will prevail in due course?
If the environment we’re evolving into resembles the 90’s at all, then $5/oz. silver doesn’t seem outrageous which would (at 40 ratio) mean a gold price of $200. Crazy? It’s happened in my lifetime. However, let’s say $15/oz. silver – industrial demand should pick up – which puts gold at $600/oz.
Will bullion escape this perilous situation? Will gold bugs be as fortunate as James Bond in the following clip from Goldfinger?