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Redburn Partners Gold is Money and Nothing Else 12th Nov 2007

Redburn Partners Gold is Money and Nothing Else 12th Nov 2007

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Published by: Steve Netwriter on Oct 26, 2009
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10/21/2011

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Important notice:
See regulatory statement on page
99
of this report.
GoldWar
“Gold is money and nothing else”
12 November 2007
Paul MylchreestImportant Note:
 
 Thesis:
The biggest credit bubble in modern history is showing signs of unravelling in the US.Debt/credit expansion brings forward consumption –it must either be purged in a deflationary recession, or inflated away through currency debasement. Gold wins in either scenario and isthe “go to” asset along with basic commodities, like food and energy.
 
GoldWar
“Gold is money and nothing else”*
Paul Mylchreest
Tel: +44 (0)20 7000 2141Mob: +44 (0)7843 061 566paul.mylchreest@redburn.comwww.redburn.com
Important Note:
See Regulatory Statementon page 99 of this report.12 November 2007
Gold price will reach at least US$1,500/oz:
we are raising our long-term goldprice estimate to US$1,500/oz (from US$900/oz) with the possibility of a spike toUS$4,000-5,000/oz. We see gold acting as a ‘Giffen good’ for a period – a risingprice leading to accelerating demand as its investment profile sees a resurgence.
Rising gold price is a warning signal:
it casts doubt on the US economy. Webelieve inflation is far higher than reported, money supply growth is running at14%, debt/GDP is nearly 350% (vs the 270% peak in the Depression) andthe ‘fiscal gap’ faced by the Federal Government is US$50-70
trn 
. The FederalGovernment’s accounts have not been signed off by its auditors for ten years.
The US faces rapidly rising inflation or deflationary recession:
credit cycles(and this one is extreme) always end in a deflationary bust – this is the lesson of the Kondratieff Cycle. The Fed will most likely try to defy economic gravity usingincreasingly inflationary means. Gold is the only asset to outperform in periods of either uncontrollable inflation or deflation: the US economy is on a knife-edgebetween the two.
 A “Crack-up Boom”?:
should the Fed choose to stave off recession via inflation,the scene could be set for a “Crack-up Boom”. If inflation is perceived to bea deliberate policy, there will be major shift out of financial assets (like cash andbonds) and into “real” assets. Gold will be the asset of choice and gold stocks willexperience a bull market. In the report, we highlight
Peter Hambro Mining
(ratedBuy). Natural resources and natural resource stocks will also benefit: the Miningsector as a whole would continue to outperform.
Lack of transparency:
gold is a vital barometer and if the gold market is not freeand transparent, it acts against the interests of businesses, investors and thepublic. IMF accounting regulations continue to obscure the level of gold remainingin central bank vaults. Furthermore, the use of unallocated gold accounts masksthe fractional reserve nature of most gold banking/trading and private investment.Holders of “unallocated” gold are simply unsecured creditors with general claimson “pools” of gold. If all those claiming gold ownership demanded physicaldelivery, we argue the gold price would soar.
*JP Morgan in testimony to the Pujo hearings in 1913 

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