Gold over $1000 an ounce

As I predicted in March 2008, October 2008, January 2009 and March 2009, I said that gold would increase in price substantially and would go over $1000.00. This week it is at $1005 per ounce. So where will it go from here?

With the Chinese stocking up on their gold reserves, Hong Kong deciding to take all its reserves out of a London depository and open their own holding at Hong Kong airport, with Russia saying that it’s advisable to have at least 10% of their assets in gold, there are signs worldwide that gold is becoming a more interesting commodity, even for the average person. Indeed in China, they Chinese public are being encouraged to buy gold and silver.

Nearly $2 trillion tax dollars have already been spent on bailouts of financial institutions and banks so far in the US, but we are probably about halfway through the unwinding of the mortgage bubble in the USA. There is still a lot of pain to come in terms of writedowns and losses that have yet to be recognised.

Things are going to be much worse than anyone anticipates. There were two other kinds of mortgages that became very popular. There were option arms which lured in all kinds of investors with very low “teaser rates” for 2, 3 or 5 years, but after that the interest rate goes up substantially. The other type is called Alt A loans and they too were given to people on low rates and the unwinding of these mortgages is yet to come. A mortgage of say $800 a month could easily jump to $1500. Now these loans are starting to reset causing mortgage payments to go up and owners to default. This will lead to more foreclosures. This is a time bomb. We are at the beginning of the second wave.

With this in mind, it is likely that more people will rush into the safety of gold. So expect the price to go up to $1500 or more within the next year or so.