Dear Sir,
Gold was trading at $865 and US$1.29 = 1 euro on April 19, 2009. On 29 May 2009, I sent this Gold study I had prepared in 2007, to all the newly elected UDP officials and to the director of CIMA, urging them to diversify the US$99.8 million in the Cayman Islands reserves, which stood at US$110.15 million in December 2007.
On Tuesday 8th September, gold went over $1,007 and the dollar was down to US$1.45 = 1 euro…
We are on the verge of another sharp drop in the value of the US dollar, as the US is facing multi-trillion deficits for the foreseeable future that are now substantially financed through printing more dollars at the bargain cost of 2.4 cents for every $100 dollar bill. It should soon plunge through previous strong support at $1.65 = 1 Euro with an intermediate target of around $1.90 = 1 euro.
However, none of the main fiat currencies, including the euro are in good shape, nor do the best of them last much longer than a couple hundred years before disappearing into oblivion.
Gold on the other hand has been a proven store of value for millennia with some 95% of all gold produced still in existence today: in 1971, gold was worth $35 an ounce when its peg with the dollar was ended by Nixon: in 38 years, it has risen 2,857% to $1,000 in relation to the dollar, which has lost 96.5% of its value in the same time frame...
Gold study:
This information was originally posted on a financial forum back in late 2007 when gold was trading around $650, so it’s a bit dated. However, fundamentals have continued to get worse for the US dollar and much better for gold…
Gold hit $850 in 1980 and just recently again, as up-trending precious metals have a habit of revisiting previous high. If we agree that gold will make new highs in this climate of financial uncertainty, blatant expansion of money/credit out of thin air by most countries and soon to come rampant inflation, what would be the equivalent of last gold’s high in today’s currency?...
The money supply in fiat currencies is exploding worldwide: in 1971 there were 776 billion US dollars in circulation. Today there are over 12 trillion. Around the world the supply of paper money is growing at a stunning pace. In the last seven years alone, the supply of British pounds grew by 99%; euros grew by 78%; Indian rupees grew by 234%, Chinese yuan grew by 227% and Russian rubles grew by 1,508%. Because central banks create money at virtually no cost, its supply tends to grow without constraint.
To put this analysis together, data for the relative expansion of the US dollar and gold production between 1980 and 2006 was obtained from various charts.
Once the relative difference of growth/expansion between both the dollar and gold supply is established, one only need apply the corrections to the $850 high to obtain the target for gold in today’s currency…
The expansion of the total US dollar money supply has exceeded 500% between 1980 and 2006, while the total supply of gold has only increased by 70%, from 2.6 billion ounces to a total of 4.4 billion ounces. In fact, worldwide production of gold has been in decline since 2001.
Adjusted gold price target: $850 x 500% = $4,250 x 70% = $2,975.00…
Since these calculations were made, the supply of dollars has greatly accelerated, while gold production continues to decline steadily, so it would not be surprising if gold actually reached $5,000 at its peak...
Notes:
Just as peak oil occurred in the US in 1970, with its production in steady decline ever since, peak gold production is also taking place: South Africa, which used to mine 68% of worldwide gold production in the 70s is now down to 11%. Today, China is the top producer, but hoards most of its production to increase its reserves that have recently doubled to 1,054 tons. Chinese citizens now have access to the precious metals market and are encouraged to purchase by the government.
To support the dollar, the US government has made every effort to suppress the price of gold and this time around won’t be any different. So, substantial price fluctuations and retracement of recent gains should be expected: the advice of an experienced financial adviser is essential when deciding to invest.
Conclusion:
Even though gold prices have increased nearly fourfold from $255 an ounce, the overall production has continued to decline steadily. With the dollar being debased at the rate of 18% a year, the yuan 19%, the euro 14%, etc… and all the sovereign countries competing against each other to print more worthless bills, it’s just a matter of time before confidence in the fiat currency system falters. Gold then, the only real money that has proven itself over several millennia will regain its full status...
I firmly believe that CIMA’s reserves, instead of being all denominated in US dollars, should be promptly diversified and include a physical gold holding of at least one third of their total value…
Frank Goelo | 
