Analyst sees gold price reaching $5,000/oz

According to the article, gold could jump to $5,000 per ounce in the next five years as investors continue to lose confidence in major economies due to excessive public debt. According to one expert, it doesn't matter if Romney wins or if Obama is re-elected, there is still no hope for the recovery of the US economy.

THE NATION October 12, 2012 1:00 am
The Nation

Gold could jump to US$5,000 per ounce over the next five years as investors lose confidence in major economies because of excessive public debt in the United States, Europe and Japan, a financial expert said yesterday. "If you look at the US 2013 budget, US public debt is $16 trillion and is estimated to rise to $26 trillion over the next 10 years," said Martin Armstrong, former chairman of Princeton Economics International.

Investors should not stay in one place for more than two years because of the highly volatile global financial market, he said.

US President Barack Obama is likely to be retained in office in next month's presidential election, he said. There is no difference in the economic policies proposed by Obama and his rival Mitt Romney; they are like Pepsi and Coca-Cola soft-drink brands.

Given such a scenario, Armstrong said, there was no hope for recovery of the US economy.

The US tax increase planned under Obama will not help the government pay debt, as capital will just move elsewhere, he claimed. Small and medium-sized enterprises will not hire more workers because of the higher taxes.

Obama cannot tax only the super-rich like Warren Buffett, he said. There are too few of them.

The US Federal Reserve's move to inject more liquidity in the market will not stimulate the economy either, as the injected money will not end up in the hands of domestic bondholders but in the hands of the Chinese, because of globalisation, Armstrong said.

Capital will flee the US later, causing interest rates in that country to rise, which would worsen fiscal deficits.

European governments will not be able to solve the sovereign debt crisis. Politicians do not know how the system works or how to fix it, he claimed.

"You cannot create a single currency without creating single debt," he |said, referring to the euro-zone debt crisis.

The Japanese government also faces the same issue of high public debt. Solutions would be debt defaults or monetisation.

"Debt defaults were everywhere in global history," he said.

Capital will move out of government bonds to corporate debt because when companies go bankrupt, investors can get something back, but when governments go bust, investors get nothing.

Gold will also likely soar after the price reaches $2,000 per ounce. It is currently about $1,700-$1,800. It could shoot up to $5,000 from 2017-20, as investors abandon government bonds.

Capital is expected to flow into Asia, particularly China and Southeast Asia. Stock prices in the region have room to rise further but investors should not stay more than two years in one place.

They have to move back and forth because of the high volatility of capital movement.

Based on his Economic Confidence Model, which features an 8.6-year business cycle, by October 2015, the world economy will be entirely reformed, as the current system no longer works, Armstrong said.

Armstrong plans to hold a "World Economic Conference" in Bangkok from November 2-3, for which he will charge participants about Bt30,000 each.

He was claimed to be a financial genius but was also sentenced in the US to nine years in jailed for fraud.

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