Jim Rogers Eyeing Gold at $1,300

Nothing supports a price better than interested buyers with deep pockets. And gold finally has them now, with even more buyers getting ready to queue up.

One of those interested buyers with deep pockets is Jim Rogers, known worldwide as the man who predicted the commodities bull run some 15 years ago.

Though he is not buying at the moment (so he says; I’m sceptical about that, as savvy investors never tell people what they are buying and when), he does say he will be a buyer of gold at $1,300 and below.

A Fortune’s Misfortune

Investments in gold which quickly grew into small fortunes suffered an unfortunate turn of sentiment this April. By April 16^th, gold was down 15% in two days, 17% on the month, 22% year-to-date, and 31% off its 2011 highs.

Banks have lowered their gold forecasts, some predicting prices to fall year over year for the first time in over a decade. Morgan Stanley declared the top for gold “has now passed”. Banks and investment funds alike have exited long positions, including Goldman Sachs and University of Texas Investment Management Co, the third largest U.S. university endowment.

Why The Negativity?

Some blame the absence of inflation. The most recent U.S. inflation report on April 16^th showed a drop in gasoline prices and in the energy index, a drop in CPI (consumer price index), and a 1.5% 12-month CPI, which was lower than the previous month’s 2% and well below the 2.5% limit that the Federal Reserve wants to avoid.

One of gold’s primary benefits is protection against inflation. But you just don’t need that much insurance against a monster that is nowhere near your backyard. What is more, gold generates no income, whereas equities do. And few can resist a stock market on a tear.

Then there’s Europe, with governments sorely in need of cash. From Cyprus to Italy to Spain, talk of possible gold sales en masse spooked gold holders to sell ahead of the anticipated rush.

But these very reasons which sellers cite to back their decision to sell (namely inflation and central bank decisions) are the same catalysts buyers cite to back their decision to buy.

Gold Buyers Galore

From Beijing to Bangalore to Boston, investors and institutions are diving into gold with both feet, while others have taken off their shoes, rolled up their cuffs, and are standing by to do the same.

UBS AG (NYSE:UBS) reported earlier this week that gold inflows to India are near the frenzied highs last seen in 2008, when gold suffered a similar 30% correction. Chairman of Bangalore’s Rajesh Exports Recent indicated jewellery and bullion sales are estimated to be 4 tons daily, almost twice the normal 2 – 2.5 tons per day.

Though central bank sales were one of the fears triggering the recent sell-off, en masse sales have not happened. Rather the opposite, as the Market Oracle reports:

“Latest data from the International Monetary Fund meantime show that emerging-market central banks again chose to buy gold for their reserves in March. Russia led central-bank gold buying, adding 4.7 tonnes to reach 981 tonnes, while Turkey continued to pull in metal from its commercial banks, adding a further 33 tonnes to reach 409. Reuters quotes Yuichi Ikemizu at Standard Bank in Tokyo, ‘I think South Korea is buying gold too. [It] always buys gold when the price comes off.’”

Bloomberg adds Kazakhstan to that list of bargain hunters.

As for inflation, some deep pocketed investors are still expecting it to arrive abruptly, like the proverbial “thief in the night”. Consequently, they are keeping their bets on gold.

Bloomberg reports that “billionaire John Paulson has stuck with his view that the metal will climb as a hedge against inflation.”

Commodity guru Jim Rogers, for his part, is one of those with his shoes off and cuffs rolled up, ready to dive in again. “If it goes down enough, I will start buying it,” Bloomberg cites. “If it goes to $1,300, I hope I am smart enough to buy some. If it goes lower to $1,200, I hope to buy even more. If… that’s not a prediction.”

Standard Bank’s Ikemizu summed it up: “I think physical and central banks…those buyers are supporting the market.”

Accelerator Down

The reasons for owning gold have not changed over the past 12 years. And we all know what those are: central bank stimulus, low interest rates, devalued fiat currency, uncontrollable national debt, and continuing debt ceiling increases.

These are all inflationary, and governments want it that way. They fear deflation more than they do inflation. You can’t tax deflation. You can tax a growing economy to the hilt, but a deflationary, shrinking economy means less revenue for the government and an inability to manage debt.

As well, inflation is easier to control by raising the interest rate. But deflation is much harder to control, since it requires lowering rates. At some point—like zero—you just can’t lower them anymore.

Well, this is where most countries are. They’ve hit rock bottom. The only thing they can do beyond lowering rates to zero is simply give money away for free through stimulus.

But it’s still not working. They want growth, which they are just not getting. While sellers are citing the absence of inflation as the reason to sell gold, buyers are citing the absence of growth as the reason to buy it.

The absence of growth means that central banks around the world are going to keep their feet on the gas pedal much longer than previously thought. This will ultimately crush fiat currencies, just as Japan’s agressive stimulus measures have crushed the Yen. And as currencies fall, gold rises.

Just One Little Trigger

This is one huge wind blowing into gold’s sails. So much force this wind has that French bank Société Générale’s global strategist Albert Edwards is sticking to his call for $10,000 gold, as cited by BullionVault.com yesterday:

[Now, before continuing with Edwards’ opinion, let’s all calm down a little. $10,000 gold is unlikely. For your own reputation’s sake, don’t go around calling for it to happen anytime soon, or you will be labelled a crack-pot. With that out of the way, let’s hear the man out.]

“Writing in his weekly Global Strategy report, Edwards says that US quantitative easing – better known as ‘money printing’ – means that ‘rapid inflation surely beckons’. But not until the current weakening in US economic data becomes a new recession, leading to yet more money creation by the US Federal Reserve.

“That will force the rate of interest paid by US Treasury bonds – what Edwards calls ‘a key driver’ of the gold price – still lower, as confidence flees the equity market.

“’We repeat [Edwards reaffirms] our key forecasts of the S&P Composite to bottom around 450, accompanied by sub-1% US 10-year [bond] yields and gold above $10,000.”

Did you catch what the little trigger is that will turn the tables upside down? Recession. When economists come to the conclusion that the globe is heading into another recession, everything will turn on its head. What has been going up (equities) will come down. And what has been coming down (precious metals) will go up.

Already there is concern that the U.S. stock market has gone up artificially, that most of the increase over the past 4 years since 2009 has been due to government stimulus.

Their reasoning? Painfully slow job growth; unemployment is still too high. Stock growth without job growth means the growth is not real. Their stocks have been rising through other means, such as cost cutting.

This is precisely what the recent Q1 results of U.S. companies have shown. Companies have managed to improve their bottom lines (profit), but their top lines (sales) have not grown. They managed to cut costs but have not expanded.

This is precarious, since you can only cut costs so far. This is why the Federal Reserve has not changed its monetary stance one single bit in all these past 4 years, and it is why bonds have not collapsed. There has been insufficient economic growth.

If people thought there was a bubble in gold, that bubble has now moved into equities. Bubbles grow where the money is. Money has moved out of gold into equities, and the bubble has moved with it.

They said that without inflation, gold did not belong as high as it was. Well, without growth, the stock markets do not belong as high as they are. When this equity bubble bursts, money will flow back into bonds and gold.

When? Who knows. But until central banks stop pumping out money and start raising rates, there is no way anyone can keep gold down.

Back to the current time. “This may be the correction that gold needs,” Rogers opined to the Business Insider. “Rogers said he expects gold prices to fall further for the ‘foreseeable future’ but expects ‘gold to eventually go higher over the decade.’”

Joseph Cafariello

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