First off, let me start by saying that ALL predictions around the timing and price of commodities or any other asset class need to be taken with a big grain of salt. Regardless of the relentless descent of the economic fundamentals that we are now witnessing, financial markets will do what they do, which is to rise sharply, fall sharply, meander sideways and otherwise move in such a way as to confuse and torture as many investors as possible. The market is a casino, if you stay at the table long enough, eventually the house will get its money back.
That said, I believe, based on my deflation thesis, that there will be an entry point for gold and silver that is significantly lower than these current levels, and I am willing to play my hand that way. From the 2001 low of ~$250 to the recent high of $1000+ dollars, gold has risen 300% in what I believe is the "first wave" in a long-term secular move. Furthermore, based on the chart pattern and Elliot Wave analysis, I believe that we will see a deep pullback to roughly $500 per ounce (+- $50), which would be a 62% Fibonacci retracement.
I know, there are many who believe that gold is a "safe haven" and therefore will continue to rise, as the world stock markets fall. However, that common belief is also predicated on the view that the U.S. dollar will continue to sink inexorably into oblivion. In a deflationary environment, however, there will be a shortage of U.S. dollars and the dollar (beyond all expectations) will rally. Also, contrary to the "safe haven" theory, when global stock markets sold off hard into their January panic lows, gold fell in synch with the stock market. Therefore, one must surmise that this rally in gold is just another product of the credit bubble and the overall rise of all commodities. Once the commodity bubble bursts, gold will come down with everything else.
There is a somewhat risky assumption built into my prediction however, and that is in assuming foreign creditors will continue to sponsor the U.S. debt ponzi well into a deflationary downturn. If they don't, and there are reasons to believe they may not, then the U.S. dollar would collapse and gold would soar. Back in October, the Chinese raised the specter of using the "nuclear" option of selling off their U.S. dollar holdings. At the time, they were obviously just playing political games, but if they do eventually liquidate their U.S. holdings, then the only safe place in this country will be a bunker in Montana with 10 years worth of food and 100,000 rounds of ammunition.
Which gets us back to the title of my post, that in the long run gold is the only true money. They say money doesn't grow on trees, but in fact it does. Paper comes from trees and therefore there is literally an endless supply of "money". Paper currency has no intrinsic value; it has only notional value, based on the faith and trust people have in the Government issuing it. Once that faith and trust is lost, the value of paper currency will be lower than 4-ply toilet roll, and gold could easily be at $4000 an ounce (bread will likely be over $8 per loaf - maybe we should stockpile bread...).
How do I reconcile my short-term belief that gold is not currently a "safe haven" vs. my long-term belief that gold is the only money worth owning? Easy, based on the fact that most people still have faith in the U.S. dollar as their primary currency. Trying to determine when widespread recognition of the fallacy of this faith occurs, is obviously difficult to predict. For my part, as indicated above, I will trust the technical (chart-based) road map for determining my entry point for gold, unless I see something event-driven that changes my mind - which could occur at any time...
To be continued...