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Tomorrow's surge in gold is unlikely to strike tomorrow.
Of course, some would say that another major move higher will never come at all; perhaps viewing this entire decade-long event as an over-extended bubble of fear that popped suddenly and unceremoniously near $1,260 per ounce. For many of them, a next leg higher could force the overdue revision of an incredulous outlook on the sector.
For those with the correct mind-set for gold, tomorrow could come next week, next month, or even next year ... it makes little difference if you're already in position. Gold has already soared through previous monster-moves in price, but I believe the metal is now preparing to go parabolic.
Fiscal policy in the U.S. remains hyper-accommodative with no sign of impending hawkishness. Recently heightened deflationary concerns appear likely to trigger further rounds of stimulus or other debt-financed interventions. Furthermore, deep and pervasive budget deficits of states and municipalities throughout the land portend some very significant domestic challenges ahead.
In a move that I consider a landmark precedent, the state-owned China National Gold Group Corporation inked a long-term supply agreement for half the life-of-mine gold production from Coeur d'Alene Mines' (NYSE: CDE ) new Kensington gold mine in Alaska. Additionally, the 7.3 million ounces of gold believed to underlie the Galore Creek joint venture between Teck Resources (NYSE: TCK ) and NovaGold Resources (AMEX: NG ) was potentially a factor in China Investment Corporation's decision last year to acquire a 17% stake in Teck.
At the same time that China is ramping up its exposure to gold, the country continues to reduce its exposure to U.S. debt. Recent data reveal that China's holdings of U.S. Treasuries in June fell to $843.7 billion, marking nearly an 8% reduction from $915.8 billion one year earlier. In fact, China shed more than $56 billion in Treasuries on a net basis in just two months' time (April to June). It is my contention that without concerted buying activity by Japan and the U.K. over recent months, China's ongoing exodus from U.S. dollar exposure could have touched off a fresh crisis of confidence in the greenback.
Unfortunately, I maintain that such a crisis remains unavoidable. But don't just take my word for it.
John Embry, chief investment strategist for Sprott Asset Management, recently offered his sobering assessment of the present predicament:
If the U.S. is lapsing back into some serious economic difficulty, there will be a sudden realization that the financial situation is hopeless. As a result they're going to have to create so much money or take such a brutal deflationary depression that people will change their philosophy and not invest in U.S. bonds at 2.85% for 10 years. It won't take much money coming in the direction of gold and silver to have a significant impact.
In another recent interview, Embry attached a time-component to his outlook for gold to which ardent skeptics can hold him to account. Embry laid his gold chips right upon the table, declaring: "If it's not between $1,500 and $2,000 in the next 18 months, I'm dead wrong."
Mark Bristow, CEO of noteworthy success story Randgold Resources (Nasdaq: GOLD ) , believes that "a gold price of $1,500 per ounce in 2011 is not unrealistic."
Gold typically bottoms in August and starts moving in September in advance of any other commodity. So I'm looking for probably an $1,100 to $1,140 bottom in August, and a fairly aggressive next wave in the fourth quarter ... certainly going through the old high of $1,260, and I'm looking for $1,350, and maybe even as high as $1,500 this year. I'll be even more aggressive next year.
Legendary commodity trader Jim Rogers reiterated his $2,000 price target for gold after economist Nouriel Roubini made what I have argued was his worst call ever.
High-profile gold expert Jim Sinclair, chairman and CEO of Tanzanian Royalty Exploration (AMEX: TRE ) , took price-forecasting to a new level with a $1 million wager (issued in 2008) that gold would trade to $1,650 per ounce on or before January 14, 2011.
Will gold launch to $1,650 per ounce in time to save Jim Sinclair from a verbal whipping at the hands of gold bears? That would require an astonishing near-term move, a parabolic repricing event that in my estimation could be triggered by an acute currency crisis. I think such an event looms, though I am more circumspect about the precise timing. In the meantime, I stand steadfastly and confidently with my carefully selected basket of gold producers: including ultra-persistent value Yamana Gold (NYSE: AUY ) and junior all-star Northgate Minerals (AMEX: NXG ) .