Gold and the Doomsday Scenario

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Macroeconomics, Precious Metals

Can we just agree to end the media doomsday scenarios?

Metals have made some very big headlines this past week. We have covered some of those stories on MetalMiner. But this one just takes the cake, “Citigroup says gold could rise above $2000/ounce next year as world unravels.” Nice uplifting headline. But gold at $2000 an ounce? Well, it’s possible of course but statistically, what is the likelihood of that happening? Maybe Citigroup’s world is unraveling (just catch these headlines here and here). Maybe Citigroup  is projecting its own issues onto the larger economy?  That’s one  theory.

I’m not meaning to suggest that the global economy isn’t hurting (of course it is). But gold has never  reached or even come close for that matter to  $2000/ounce. Consider this chart tracking gold from 1975 to today:

The doom and gloom article suggested, “this gamble (editor’s note: the gamble refers to “the world’s authorities taking steps that have never been tried before”) 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.”

Statements like these make me want to ask a few questions:

  1. Citibank, could you kindly share with us the other potential outcomes your PhD economists analyzed?
  2. Did you actually run something through a model or were you testing water cooler theories on the future of Citibank?
  3. Can you kindly define ‘likely’? We from the manufacturing community speak in percentages. We strive for 98% on time deliveries, for example. When you say the gamble is “likely” to end in one of two extreme ways, would you say that you are 98% sure it will end in one of those extremes? Or is it 95%? Or is it something else? Let’s save the internal hysteria for your own company newsletter
  4. Do you mean to suggest that the dollar is headed for a crash and we’ll see significant inflation? Both  are typically required for  higher gold prices.

I don’t know how you all feel but what I do know is this: I’m getting tired of hearing about these doomsday scenarios. We’ll be coming out with our price predictions later this year and I can tell you one thing, they won’t be calling gold at $2000/ounce!

–Lisa Reisman

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