Standby for ‘currency induced cost push inflation’ to take gold to $3,500 predicts the legendary Jim Sinclair

Gold is heading to $3,500 and possibly as high as $12,400 an ounce predicts ‘Mr. Gold’ Jim Sinclair the legendary gold trader who advised the Hunt Brothers in the late 1970s and probably made more money than anybody else of of the 1970’s gold boom.

In his latest missive to his many fans among the gold bugs he also tells investors not to worry about the day-to-day gyrations of the gold price. Mr. Sinclair says that they should instead be focused on what he sees as inevitable and coming next: ‘currency induced cost push inflation’.

1970’s paradigm

As a veteran economics student from the late 1970s this writer can very well remember to what Mr. Sinclair refers. Those were the days of double-digit retail price inflation. The cost of buying basic items of domestic consumption rose month-by-month. I had a Saturday job repricing items in WH Smith and we got a new price list weekly.

As I learned from my elementary economic research and reading Peter Donaldson’s ‘Economics of the Real World’ the cause of these price rises was really very simple to understand. There was a great deal of money printing in the 1970s. First, to inflate away the debts of the Vietnam War, and later to boost the economy after the awful stock market crash of 1974.

It is no different today really. We need to inflate away the debts left behind by the great US housing bust and the enormous amount of public debt created to offset the impact of the global financial crisis of 2008-9.
The central bankers of the world went to the same kind of institution as this correspondent, read the same books and then pursued a different career. But they know exactly where they stand today and what they are doing.

They simply don’t want to frighten people too much with economic reality, and get on with the business of robbing them quietly of their savings to pay for the past misdeeds of others. Inflation goes up and the real value of those debts goes down.

Precious metals

Gold and silver perform exceptionally well in such circumstances because they are the one money that central bankers cannot print. Precious metals are limited in supply by previous production and only a tiny amount can be added year-after-year. You cannot create $40 billion a month like the Fed’s QE3 program.

Of course the official inflation figures do not show anything like the true position, though these figures are showing a sharp upward trend all the same. The central banks know how to get these figures ‘right’ by excluding various items of daily expenditure that might show a worse reading.

Consumers will soon come to know all about ‘currency induced cost push inflation’ and so will investors in precious metals. In the late 1970s it was the gold bugs and oil sheikhs who made all the money. It is not going to be any different this time around either.