Caesar Bryan continues:

“Most of that increase has been in the last few years, since the financial crisis.  We are clearly not at the end of this, and you could argue that the rate of increase is actually accelerating.  I don’t believe that has been properly reflected in the gold market yet.

The gold market breached $1,000 in the beginning of 2008, fell toward the $700 level after the Lehman crisis, and then went back over $1,000 in 2009.  Since that time we have had a dramatic increase, a more than doubling of the balance sheets of just those four central banks....

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“The underlying price of gold hasn’t even kept up with the increase in the balance sheets of the central banks.  So there is no question that gold is undervalued today.   As these central banks continue to expand their balance sheets, the upside for gold is very significant.

It’s not as if investors are overweight in gold.  On the contrary, central banks and private investors have a very tiny exposure to gold.  So should there be a discussion about changes to the financial architecture, with a role for gold being part of that new architecture, then gold would go much higher.  Gold could easily double from here.

Gold has had a decent move over the past couple of months, but you have to remember that gold already traded near $2,000 in the summer of 2011.  Meanwhile, money printing at central banks continues unabated.  The Fed has already said they are going to do this mortgage-backed asset purchase scheme, but if the economy does not respond, they are prepared to do more. 

The European situation is different, but the result seems to be very similar.  We have unsustainably high interest rates in the periphery of Europe, and the ECB is going to purchase those peripheral bond markets until rates come down and those countries can finance themselves.

The political will in Europe to maintain the euro is very strong.  To maintain the euro necessitates these dramatic moves.  So it is crystal clear that in an environment of subdued economic growth, central banks are going to remain very active, and this will act as an accelerant for gold going forward.”

Bryan also added: “The gold equities continue to be inexpensive, and unloved, despite their recent performance.  There is excellent potential, in a high gold price environment, for gold equities to put in a very powerful performance.  The bottom line is they are still incredibly cheap at these levels.”

© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

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Eric King

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