Tuesday, September 7, 2010

Matterhorn Asset Mgt: Three Realistic Gold Targets: $6,000 - $7,000 - $10,000

Warning: We present to you the analysis of Matterhorn Asset Management. We fully agree that the long-term prospects for gold appear extremely bullish. However, given that global central bankers, including the Fed, are not yet printing significant amounts of new money, the potential for significant downtrends exists. There are two short-term trends going on here. First we have new buyers entering the market to buy gold. Second we have the deflationary pressure that not much new money is being printed at present. These two factors may make gold extremely volatile in the short-term. Buy gold as a long-term hedge but realize new gold investors are likely to be "weak" holders of gold and could be shaken out in any correction, making for an extremely rocky ride.

By Egon von Greyerz

Fundamental and technical factors for gold are now in total harmony and gold is entering a virtuous circle that will drive the price up at its fastest pace since this bull market started in 1999.

•It is a fact that gold in US dollars (and many other currencies) has gone up 400% in eleven years or 16% per annum annualised.

•It is a fact that the US dollar has declined 80% in value against gold since 1999.

•It is a fact that the dollar and most other currencies have gone down 98-99% against gold since 1913 when the Federal Reserve Bank of New York was created.

•It is also a fact that the Dow Jones (and many world stock markets) has declined over 80% against gold since 1999.

•It is a fact that gold has made a new all time monthly closing high in dollars in August 2010.

Gold trend

We expect gold to start a substantial rise now which will continue for 5-10 months before any major correction. Gold’s technical picture is extremely strong with a continuous rising pattern of higher highs and higher lows with the steepness of the curve increasing. From much higher levels we are likely to see a correction that could last up to a year before the next rise which will last several years before we see a significant peak. Once gold has topped we do not expect the same kind of decline as after the 1980 peak since gold is likely to become part of a future reserve currency. At that point gold will be a solid but unexciting investment with very little upside potential. But that is likely to be a few years away.

In spite of a 5 times increase in the value of gold or an 80% decline against many currencies and stockmarkets in the last 11 years, most investors own no gold and still do not understand the importance and value of gold. In a world of constant money printing and credit creation leading to devaluing currencies and devaluing assets, gold reflects stability and is virtually the only store of value that cannot be destroyed by governments.

The average asset manager, fund manager, pension fund or private individual owns no physical gold and at best has a very small exposure to some precious metals stocks. And in spite of this gold has gone up over 400% in 11 years. How is that possible? For the simple reason with the relatively modest demand that we have seen in the last few years, there is not enough physical gold even at these levels. The increase in demand that we have seen has most probably been satisfied by central banks leasing or lending their gold to the bullion banks. Central banks supposedly own 30,000 tons of gold but unofficial estimates of their real holdings are at 15,000 tons or less.

So what are the factors that are likely to lead to a major rise in the gold price?

We have for several years outlined in our Newsletters the problems in the world that inevitably will lead to massive money printing and a hyperinflationary depression (see for example “Alea Iacta Est” and “There Will Be No Double Dip…” on the Matterhorn Asset Management website).

There are three insurmountable problems:

•Real unemployment at 22% in the US will continue to go up

•The budget deficit will increase dramatically due to the problems in the economy and in a few years time the interest on the Federal Debt is likely to be higher than tax revenues.

•None of the problems in the banking industry have been solved but merely swept under the carpet by phoney valuations of toxic debt with the blessing of governments. The circa $20 trillion that were pumped into the world economy to save the financial system in 2008-9 have had a very short term beneficial effect but solved none of the problems.

The effect of this massive $20 trillion infusion has been ephemeral since we are entering the autumn of 2010 with virtually every single economic indicator and statistic in the US deteriorating rapidly. With interest rates already at zero there is no ammunition left but one. And it is this specific last bullet that will be used to infinity in the next few years and starting very soon, namely UNLIMITED MONEY PRINTING. Every single area of the US economy will need support or printed money, whether it is the federal government, the states, the municipalities, banks, pension funds, insurance companies, the unemployed, corporations, health care, housing market, commercial real estate, individuals, etc, etc, etc. The list is endless and many other countries will follow.

Read the rest here.


  1. I suppose you could purchase a gold mutual fund rather than purchasing gold itself??

  2. Avoid "paper" gold. Gold trades on a fractional reserve basis currently leveraged 100 to one paper to physical.

  3. You will not be allowed to trade your gold at $6,000, the government will either impose a draconian tax or stop any buying or selling.
    After all they have done it before.

  4. Zim: Yes you can, although some people want the physical gold. I guess it depends on how paranoid you are. I'm not there (yet), but in recent weeks I did buy into two funds: GLD and TGLDX.