The year 2011 will mark the 11th consecutive year that gold bullion prices have closed the year higher than they started the year. Here are the raw numbers, the closing numbers of the price of gold bullion per ounce every year since 2000:
2000 – $273.00
2001 – $279.00
2002 – $348.00
2003 – $416.00
2004 – $438.00
2005 – $520.00
2006 – $638.00
2007 – $838.00
2008 – $884.00
2009 – $1,092
2010 – $1,405
2011 – $1,680 (current date)
When we look at raw gold bullion price data, we see that the big price gains in gold bullion started in about 2009, after the Federal Reserve responded to the credit crisis of 2008 by significantly increasing the money supply.
Each year that passes, I hear the same story from a group of my readers: “I missed the rally in gold bullion prices, it’s too late, and I’ve lost out.” In my opinion, nothing could be further from the truth.
I still believe that the biggest price gains for gold bullion lie ahead. Why?
The impact of the Fed’s actions in respect to increasing the money supply has yet to hit the “official” inflation numbers. After spending $2.3 trillion to buy U.S. government Treasuries, a survey of the biggest U.S. bond dealers by Bloomberg (11/28/11) says that the Fed will buy an estimated $545 billion more in mortgage securities in the first quarter of 2012.
Dallas Fed president Richard Fisher and Philadelphia Fed president Charles Plosser have both publicly come out against the Fed printing more money to solve the country’s economic problems, as money printing leads to inflation.
As I have written many times, the prices of quality gold producing stocks have lagged the price performance of gold bullion. I’m looking to 2012 as year the price of gold bullion rises sharply, as the impact of a greatly expanded money supply results in rapid inflation.
When President Obama took office, the national debt stood at around $10.0 trillion. When Obama’s first term has expired, the national debt will be in the $15.0-trillion to $16.0-trillion range. In four years, the Obama administration has increased the national debt by 50%. Doesn’t this action of increasing our debt so aggressively send down the value of U.S. dollars? Doesn’t this lead to inflation? The answer is “yes” to both questions, my dear reader.
When dollars go down in value, gold bullion rises in value. When inflation rises, gold bullion prices rise in value. If you think increased government debt and multi-trillion-dollar increases in the money supply will not create inflation, then you shouldn’t be in gold bullion. If, on the other hand, like me you see the significant increases in government debt and the money supply as inflationary, the shares of quality gold producing companies look quite attractive for 2012. (Also see: Top Five Reasons Why Gold Bullion Prices Will Move Even Higher.)