US Gold Corp (USAU)

[LocalComstocker]

James Turk 2010 outlook says $2000 and this bodes well for gold buggers.

http://www.fgmr.com/january-2-2010-outlook-for-2010.html

This statement is not really a forecast, but more a comment on relative valuation of the XAU Index, the price of which ranged from 3.6 goldgrams to 5.2 goldgrams during the year. In other words, the mining stocks remain “unbelievably cheap” because they are still below the 6gg threshold, which historically has indicated relative undervaluation of the XAU Index.

So overall, I think my forecasts for 2009 were pretty good. They captured the general direction of the precious metals and mining stocks, and did so with reasonably good timing.

Let’s hope I can do as well in 2010. Here is how I expect the year ahead will unfold.

1) The US dollar is on the edge of hyperinflation. Reckless spending by the US government is causing it to borrow increasing amounts of money, which in the aggregate is more than the market is willing to lend to it.

Given its trillion dollar deficits, the US is borrowing more than it can attract from global savings. If it cannot attract enough savings to meet its borrowing needs, rather than reduce its borrowing by cutting spending, it has to ‘print’ the dollars it spends. Thus, I am not making the old argument about the US government “crowding out” other borrowers (too much supply). Rather, I expect it will become harder for the US government to find buyers for its paper (too little demand). This is of course what “quantitative easing” is all about. The Federal Reserve in the year ahead will therefore continue to purchase government debt and turn it into currency, which will eventually – and probably in 2010 – cause the US dollar to begin hyperinflating.

2) Gold will reach $2000 per ounce ($64.30 per goldgram) some time during 2010. Gold will not fall back below $1000. In fact, it is likely that a floor has been put under the market around $1050, the price at which India made its recent gold purchase from the IMF, though I don’t expect gold to fall below $1080. Like 2009, the low point for gold will probably occur early in this year’s first quarter.

There will be two forces driving gold higher. The first will be the continuing purchases of government paper by the Federal Reserve as the dollar moves ever closer hyperinflation. The second will be the growing demand for physical metal in preference to paper-gold.