A Look Forward at the Final Stage of the Gold Bull Market

“Is gold going vertical?”

The question was put to us by our Family Office strategist, Rob Marstrand.

“We could be getting to the final stage of this bull market faster than we thought,” he added.

Yesterday, the price of gold rose to new record – over $1,400. This was also the day that news reached the world that the head of the World Bank had defected. Mr. Zoellick jumped the fence…he’s no longer among the dopes.

You know who we’re talking about…the vain and foolish economists who think central planning will work. “Give the economy more liquidity!” “Raise rates!” “More fiscal stimulus!” “More austerity.”

These guys act like they know what they are talking about. But they are quacks. Mountebanks. Phonies.

Not Zoellick. He said it was time to begin talking about a new gold standard.

Gold jumped $5. What can stop it now?

But there’s always a surprise, isn’t there? We know that the dollar is going the way of all paper – to the dump. Maybe the surprise is how long it takes to get there.

Maybe gold is going vertical. Or maybe it is just toying with us.

A friend came to us over the weekend. He had four Austrian Corona 1 oz. gold coins. He wanted to sell them.

“I just need some cash now. It breaks my heart to sell them, but I’ve got to pay expenses.”

The expenses were a little unusual. He was buying a ticket for a Vietnamese woman and her children to come to the US to live. But that’s another story…

Somehow, your author has gotten a local reputation as a buyer of gold coins. So much the better. We’re not trading. We’re not investing. We’re just adding a coin now and then to our collection. We buy. We put them away. We forget about them.

“But at $1,400 an ounce?” you ask. “Isn’t gold in a bubble?”

Well, yes…and no. We liked buying the coins much more at $500 than we do today at $1,400. The price makes us a little nervous.

Gold is in a bull market, not yet a bubble. It will probably stay in a bull market for a long time – until they re-establish a gold standard for paper money…or until the international monetary system cracks up…whichever comes first.

But there’s something a little dangerous about $1,400 gold. Too much, too fast. Of course, in the final stage of the bull market, the yellow metal will trade for far more. Ordinary people will buy gold to protect themselves from inflation. They’ll get sick of watching prices on bread, diapers and gasoline go up. They’ll be desperate to grab hold of something more stable. They’ll buy gold at almost any price.

But we’re not there yet. There’s very little consumer price inflation now. The inflation we’re experiencing so far is the monetary kind – an inflation of the monetary base, not consumer prices. No one particularly cares about this kind of inflation. The other kind of inflation – in the CPI – could still be years ahead.

Right now, the economy is still de-leveraging. Bloomberg has the news:

US households cut their debt last quarter, borrowing less against homes and closing credit card accounts, according to a survey by the Federal Reserve Bank of New York.
Consumer indebtedness totaled $11.6 trillion at the end of September, down $110 billion, or 0.9 percent from the end of June, according to the New York Fed’s quarterly report on household debt and credit. Households have slashed about $1 trillion from outstanding consumer debts since the peak in the third quarter of 2008, the New York Fed said.

US households, facing a jobless rate that’s persisted near a 26-year high, have slashed debt and increased savings following the worst financial crisis since the Great Depression. That’s pared consumer spending and slowed the economic recovery, helping to prompt the Fed’s decision last week to start another round of unconventional monetary stimulus.

“Consumer debt is declining but only part of the reduction is attributable to defaults or charge-offs,” Donghoon Lee, a senior economist at the New York Fed, said in a statement. “Americans are borrowing less and paying off more debt than in the recent past. This change, which we continue to study carefully, can be a result of both tightening credit standards and voluntary changes in saving behavior.”

People still lack jobs…which means, they still lack money. And while they lack money, they need to cut back on their spending – which helps keep prices down.

The common man is not fretting about inflation. He’s not worrying about his savings or the cash in his pocket. He’s not desperate to get out of the dollar. Au contraire, he’d like to get into some cash…so he could pay his bills.

Which brings us back to this weekend’s transaction. If the gold market had entered its third and final stage, our friend wouldn’t have come over to offer us gold coins. Instead, he’d be holding onto his gold and would be desperate to get more of it.

“But what if he needed to buy something – like airline tickets?” you ask. “You can’t buy things with gold.”

True enough. But when we get to the last stage of the gold market…when gold really does go vertical…gold will be the LAST thing people will sell. Gold may have gone up $5 yesterday. But in the final stage it will go up a hundred dollars per day…or more.

Yes, dear reader, the excitement is still ahead. More hurrahs for the gold market. More profits for gold investors.

Trouble is, it could be far ahead.

And more thoughts…

A look at the real economy, from Bloomberg:

Sharron Tetrault and her family have already decided to forego exchanging gifts this holiday season. The expiration of her jobless benefits may force her to stop paying her utility bills or even rent.

Tetrault is among the about 1.2 million unemployed Americans the National Employment Labor Project in Washington says will lose their emergency and extended jobless insurance benefits by the end of the year with the scheduled expiration of the programs on Nov. 30. The resulting reduction in incomes may hurt consumer spending at the height of the holiday shopping period and restrain economic growth.

“If people are let off the rolls in November, it could impact holiday spending,” said Zach Pandl, an economist at Nomura Securities International Inc. in New York. Pandl projects economic growth would be reduced by as much as 0.4 percentage point from December through February should the benefits end.

Tetrault, a 46 year-old from Mount Vernon, New York, has been without work since January, when she lost her job as an event planner at a non-profit group. She has just over a month left before the program that gives her $405 a week in unemployment insurance payments runs out. While an extension would make her eligible for additional funds, she’s bracing for the worst.

“What I see happening is my phone getting shut off,” Tetrault said in an interview. “If I have no income how do I pay for my phone and how do employers contact me?”

The federal government currently funds the emergency and extended benefits that keep the unemployed receiving checks should recipients not find jobs by the time the 26 weeks of initial state-paid assistance runs out. The supplemental programs may reach up to 99 weeks in some states.

About 5.01 million Americans received emergency and extended benefits as of the week ended Oct. 16, according to Labor Department data. Another 4.34 million were getting the initial state-funded relief in the week ended Oct. 23.

*** We got to try out one of those new airport scanners last week. You enter. A guard tells you to turn around. You put your hands over your head. Then, he pats you down.

As far as we know, despite the billions spent…and the millions of people inconvenienced…no terrorist has ever been nabbed by these searches and scans. Has any been deterred? Who knows? But we doubt it.


Bill Bonner
for Markets and Money

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.
Bill Bonner

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1 Comment on "A Look Forward at the Final Stage of the Gold Bull Market"

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Mizou Carillo

Re: “Consumer indebtedness totaled $11.6 trillion at the end of September, down $110 billion, or 0.9 percent from the end of June…”

Would the series of foreclosures on houses that has happened over the last 2 years be the main cause of reduction of those debts ?

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