CitiGroup: Gold To Hit $2,000 – Wars To Follow

Now that the Federal Reserve has bailed out Citigroup, it’s back to business as usual. Having personally helped destabilize the world financial markets, they’re now predicting a rise in gold prices to $2,000/oz in 2009.

According to an article in the UK Telegraph:

Gold is poised for a dramatic surge and could blast through $2,000 an ounce by the end of next year as central banks flood the world’s monetary system with liquidity, according to an internal client note from the US bank Citigroup.

The bank said the damage caused by the financial excesses of the last quarter century was forcing the world’s authorities to take steps that had never been tried before.

This gamble was likely to end in one of two extreme ways: with either a resurgence of inflation; or a downward spiral into depression, civil disorder, and possibly wars. Both outcomes will cause a rush for gold.

Wait, did he say wars? Caused by a depression? I’m no history buff, but when did either inflation or depression cause wars? I thought most wars were caused by megalomaniacs or over some natural resource like water, land, oil or maybe even gold. But I don’t think lack of jobs caused people to invade another country. Maybe we should redefine the large number of Mexican workers in the US as angry hordes of invading marauders 😉

Anyway, they try to justify their stance:

“They are throwing the kitchen sink at this,” said Tom Fitzpatrick, the bank’s chief technical strategist.

“The world is not going back to normal after the magnitude of what they have done. When the dust settles this will either work, and the money they have pushed into the system will feed though into an inflation shock.

“Or it will not work because too much damage has already been done, and we will see continued financial deterioration, causing further economic deterioration, with the risk of a feedback loop. We don’t think this is the more likely outcome, but as each week and month passes, there is a growing danger of vicious circle as confidence erodes,” he said.

“This will lead to political instability. We are already seeing countries on the periphery of Europe under severe stress. Some leaders are now at record levels of unpopularity. There is a risk of domestic unrest, starting with strikes because people are feeling disenfranchised.”

“What happens if there is a meltdown in a country like Pakistan, which is a nuclear power. People react when they have their backs to the wall. We’re already seeing doubts emerge about the sovereign debts of developed AAA-rated countries, which is not something you can ignore,” he said.

Who is this people who are throwing around kitchen sinks?

But more importantly, did the author insinuate that Pakistan might start throwing around nuclear weapons if their economy falls?

According to the World Factbook:

Pakistan, an impoverished and underdeveloped country, has suffered from decades of internal political disputes, low levels of foreign investment, and a costly, ongoing confrontation with neighboring India.

Sounds like their back is already against the wall. So I guess the question is whether the default bonds from AAA-rated countries will push them over the edge! 😀

Sounds like Fitzpatrick’s original message got a little lost in translation.

Finally though, there’s something that makes sense. But that probably because it’s based on fact and not someone’s misquoted opinion.

Gold traders are playing close attention to reports from Beijing that the China is thinking of boosting its gold reserves from 600 tonnes to nearer 4,000 tonnes to diversify away from paper currencies. “If true, this is a very material change,” he said.

Mr Fitzpatrick said Britain had made a mistake selling off half its gold at the bottom of the market between 1999 to 2002. “People have started to question the value of government debt,” he said.

Citigroup said the blast-off was likely to occur within two years, and possibly as soon as 2009. Gold was trading yesterday at $812 an ounce. It is well off its all-time peak of $1,030 in February but has held up much better than other commodities over the last few months – reverting to is historical role as a safe-haven store of value and a de facto currency.

Gold has tripled in value over the last seven years, vastly outperforming Wall Street and European bourses.

Well, I think gold might hit $2,000 or more over the next few years. But hopefully there won’t be any more wars.

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