How QE3 Could Bring About $5,000 Gold and $1,000 Silver

In his recent commentary, Ambrose Evans-Pritchard sees the world nearing a revived gold standard as the US, Europe, and Japan all continue testing the limits of maximum sovereign debt levels.

With potential for QE3 — a third round of the Federal Reserve’s quantitative easing program — on the horizon, governments around the world must consider alternatives to the US dollar and other paper money. These developments are likely to continue impacting precious metal prices.

From The Telegraph:

“’It is very scary: the flight to gold is accelerating at a faster and faster speed,’ said Peter Hambro, chairman of Britain’s biggest pure gold listing Petropavlovsk. ‘One of the big US banks texted me today to say that if QE3 actually happens, we could see gold at $5,000 and silver at $1,000. I feel terribly sorry for anybody on fixed incomes tied to a fiat currency because they are not going to be able to buy things with that paper money.’

“China, Russia, Brazil, India, the Mid-East petro-powers have diversified their $7 trillion reserves into euros over the last decade to limit dollar exposure. As Europe’s monetary union itself faces an existential crisis, there is no other safe-haven currency able to absorb the flows. The Swiss franc, Canada’s loonie, the Aussie, and Korea’s won are too small.

“’There is no depth of market in these other currencies, so gold is the obvious play,’ said Neil Mellor from BNY Mellon. Western central banks (though not the US, Germany, or Italy) sold much of their gold at the depths of the bear market a decade ago. The Bank of England wins the booby prize for selling into the bottom at €254 an ounce on Gordon Brown’s orders in 1999. But Russia, China, India, the Gulf states, the Philippines, and Kazakhstan have been buying.”

Evans-Pritchard notes that China in particular delays and obscures its large gold accumulations. It has already recently doubled its holdings and plans to continuing growing its hoard from 1,054 to roughly 8,000 tonnes. Another strategic buyer of gold he cites is Switzerland, which has hearings underway on how to develop a “a parallel Gold Franc.” You can read additional details in his Telegraph commentary on how there could be a return to the gold standard as world order unravels.


Rocky Vega,
The Daily Reckoning

The Daily Reckoning