7 Reasons Why Gold Prices Are Poised To Take Off Again

I have every reason to believe gold will easily hit $5,000 or higher by mid-2016.

For starters, just consider the following.

1. The Washington fiasco. Many are jumping for joy that Washington D.C. finally agreed to end the shutdown and raise the debt ceiling so it could pay its bills. But is that really good news?

In the end, all Washington did was kick the can down the road to January on the budget and February on the debt ceiling. So there's going to be more infighting, more disagreement, more shutdowns, more nasty politics coming ― in just a few months from now. How's that good for our country?

Recent polls show Congressional approval at its lowest point ever. And I can tell you, living in Asia, most investors here now view the U.S. as a joke. They have no faith in Washington and are taking matters into their own hands. That's why the U.S. Dollar Index is just a mere 4.8 percent away from crashing to new record lows.

This is critically important for gold's emerging new bull market for the simple reason that gold does best when confidence in government is falling. And confidence in government, on both sides of the Atlantic now, is in firm bear market territory. That means the seeds for a new bull market in gold are now actively sprouting.

 2. Built-up inflation. Everyone knows inflation is higher than what Washington reports.

But when confidence in government is high, government deceit and misrepresentations are typically brushed aside — just like a Ponzi scheme that goes undetected or is glossed over during good times. Most give a cursory look at the phony inflation figures, or accept them at face value.

Not so when confidence in government is falling sharply. Just the opposite occurs. Again, like a Ponzi scheme, when investors turn sour, the charades are finally exposed for what they truly are. Lies, lies and more lies.

In the case of inflation, that's when investors begin to recognize that consumer prices have been running much higher than they previously accepted, and then they begin to act and expect prices to go ever higher, setting off a new inflationary spiral.

3. The gold market is tiny. So tiny, in fact, that all the gold that's ever been mined could fit in a cube 60 feet on each side, or roughly two Olympic-size swimming pools.

A tiny gold market is no problem when investor confidence is elsewhere, in the government's ability to manage a sound economy.

But when that confidence disappears, the tiny gold market becomes explosive as even the smallest amounts of new investment take up limited supplies, sending gold's price sharply higher.

Moreover, the huge run-up in the price of gold over the past 12 years has done little to increase supplies. In 2001, total world gold production was 2,600 tonnes, and an ounce of gold averaged $271. In 2012, the latest full-year figures, total world production was only 3.8 percent higher, at 2,700 tonnes, despite a 615 percent increase in the price of gold.

Elastic, gold is not. The higher price did virtually nothing to increase global production. Meanwhile, during gold's interim bear market over the past 30 months, dozens of mining companies have been forced to slash production, or even shut down, virtually guaranteeing that new supplies in 2014 and forward will fall.

4. Washington and Brussels want your money. They're doing everything in their power to get their hands on your wealth.

They're engaging in financial repression, artificially keeping interest rates low to transfer wealth from you to them, so they can pay their debts with lower interest rates, and their bills with cheaper currency.

They're spying on you like never before. Not just here in the U.S. but also in Europe, hunting down as much of your income and wealth to tax.

They're engaging in capital controls, limiting the movement of your money. In France, they have all but outlawed gold ownership. India has slapped a 10 percent surcharge on buying gold. Germany is hunting down and taxing money that's fled to Switzerland. The U.S. is making it nearly impossible for you to invest or put money offshore.

All of this is soon going to come back to haunt Washington and Brussels by causing the exact opposite of what they want: It will drive money underground, into black markets, and into art, collectibles, rare coins and, ironically, the asset governments hate the most, gold.

I could rattle off one bullish fundamental after another. But there are some technical reasons I must highlight as well.

5. Gold is now more oversold than at any other time since 1985. Simply take a look at the bottom of this chart. It shows the rolling returns of an investment in gold since 1981.

The recent bear market, which I pegged, is gold's worst performance since 1985 and also represents a hugely oversold condition. One that is essential to lead to a huge move in the opposite direction ― up.

6. Long-term cycles are still on track. For confirmation, all you need to do is look at this monthly cycle chart for gold, based on data back to 1792. We are now in the timeframe for a major low. Given the normal margin of error, the window spans from August to January of next year, at the latest.

Then the cycles point substantially higher heading all the way into June/July of 2015, followed by a correction, and then another blast off into 2017. The final high, with gold hitting at least $5,000, should come sometime between 2016 and 2017, at the latest.

7. Weekly cycles are also showing the potential for a major low. Take a look at my updated weekly cycle chart for gold. As you can clearly see, the shorter-term cycles point to gold now being in the timeframe for a major low.

There's more, much more I could go into. Suffice it to say that I believe we are now rapidly approaching...

• A major low in gold.
• That time and place where gold will lift off in the second major leg up in its long-term bull market, one that will ultimately see gold move to at least $5,000 an ounce.

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Originally Published on October 21, 2013 at http://www.moneyandmarkets.com