In 2011 Soros called Gold the ultimate bubble when it was trading at $1,275 per ounce.
Soros changed his position in 2012 as he began to acquire huge quantities of gold. So is gold a bubble? What should be the outlook for gold going forward in 2013? These are questions that I shall attempt to answer momentarily using a few charts. But before that let us attempt to understand the historic position of gold as an commodity.

Gold is a special commodity that has traditionally been considered to be a store of value over centuries. In an ever changing world, gold is supposed to be the only constant in the sense that it preserves its value. This is reason why gold has historically been used as money over the ages. If one were to hold this view, then it is quite likely that gold should neither appreciate or depreciate in value and should remain constant. However, gold has seen a bull run for over 10 years with its value rising exponentially. So how can this be reconciled? Actually it wasn't gold that appreciated - instead it was money that lost its value on account of inflation. Inflation in an economy only occurs if the central banks prints money out of thin air (every time the Fed prints a $100 bill, the value of all $100 bills in the economy goes down given the increase in $100 bills in the economy manifesting as inflation or loss of purchasing power of money).

Now have a look at this chart which shows you how gold has reacted to the expanding balance sheets of central banks (or to inflation):
I guess this chart addresses the first question - gold is not a bubble. Now here is coming to the next question - the outlook of Gold in 2013. The subsequent chart depicts the projected expansion in balance sheets of central banks for 2013.
With so much printing expected, it is likely that gold prices will only do one thing in 2013 - go further up! Even central bankers tend to think so. Why else would the central bank of Brazil double its holding of gold in 3 months?
By the way, the Central Bank of Iraq has also followed suite by doubling their gold reserves.

While it is difficult to predict how things will pan out a few years hence, there is one thing which is certain. There is a lot of printing yet to come.  My view is that gold is likely to go up 3x-4x in the coming high inflationary periods. If you are wondering how many ounces of gold and silver are needed t cover expenses in high inflationary periods, here is an highly recommended article by Jeff Clark that i urge you to read.
2/5/2015 07:57:10 pm

How do you explain the consistent & significant decrease in the Gold Prices in last 2 years ?

Gold has come back to 1200 from the peak of 1800 in April 2012

This is totally against your predictions in 2012 that it will continue to go up given the monetary expansion planned by most Central banks of large economies ?


Leave a Reply.