Yesterday’s bailout of Greece confirms that our neo-Keynesian central planners are committed to doing whatever it takes to prevent a collapse. That’s in spite of the fact that papering over the world’s problems will result in an even bigger crisis and the destruction of even more wealth at some point in the future.
What this means for investors is more money printing, probably much more – a perfect environment for higher gold prices. The question is, how high can gold go?
Well firstly gold needs to take out its previous record high made in January 1980, or the equivalent of it. Many in the mainstream tout the inflation adjusted figure as being equivalent to $2,400 an ounce in today’s money. But this inflation adjustment calculation is misleading as it uses the modern US CPI numbers.
If we use the same methodology for measuring inflation that was used in 1980, before all the substitution and hedonic adjustment was introduced in order to keep the inflation numbers artificially low, we see that gold would in fact have to hit $5,467 to be the equivalent of the 1980 record.
Once the yellow metal takes out $5,467 it will have no over-head resistance and in a mania could spike considerably higher.