CitiGroup: Gold To Hit $2,000 – Wars To Follow
Now that the Federal Reserve has bailed out Citigroup, it’s back to business as usual. Having personally helped destabilize the world financial markets, they’re now predicting a rise in gold prices to $2,000/oz in 2009.
According to an article in the UK Telegraph:
Gold is poised for a dramatic surge and could blast through $2,000 an ounce by the end of next year as central banks flood the world’s monetary system with liquidity, according to an internal client note from the US bank Citigroup.
The bank said the damage caused by the financial excesses of the last quarter century was forcing the world’s authorities to take steps that had never been tried before.
This gamble was likely to end in one of two extreme ways: with either a resurgence of inflation; or a downward spiral into depression, civil disorder, and possibly wars. Both outcomes will cause a rush for gold.
Wait, did he say wars? Caused by a depression? I’m no history buff, but when did either inflation or depression cause wars? I thought most wars were caused by megalomaniacs or over some natural resource like water, land, oil or maybe even gold. But I don’t think lack of jobs caused people to invade another country. Maybe we should redefine the large number of Mexican workers in the US as angry hordes of invading marauders 
Anyway, they try to justify their stance:
“They are throwing the kitchen sink at this,” said Tom Fitzpatrick, the bank’s chief technical strategist.
“The world is not going back to normal after the magnitude of what they have done. When the dust settles this will either work, and the money they have pushed into the system will feed though into an inflation shock.
“Or it will not work because too much damage has already been done, and we will see continued financial deterioration, causing further economic deterioration, with the risk of a feedback loop. We don’t think this is the more likely outcome, but as each week and month passes, there is a growing danger of vicious circle as confidence erodes,” he said.
“This will lead to political instability. We are already seeing countries on the periphery of Europe under severe stress. Some leaders are now at record levels of unpopularity. There is a risk of domestic unrest, starting with strikes because people are feeling disenfranchised.”
“What happens if there is a meltdown in a country like Pakistan, which is a nuclear power. People react when they have their backs to the wall. We’re already seeing doubts emerge about the sovereign debts of developed AAA-rated countries, which is not something you can ignore,” he said.
Who is this people who are throwing around kitchen sinks?
But more importantly, did the author insinuate that Pakistan might start throwing around nuclear weapons if their economy falls?
According to the World Factbook:
Pakistan, an impoverished and underdeveloped country, has suffered from decades of internal political disputes, low levels of foreign investment, and a costly, ongoing confrontation with neighboring India.
Sounds like their back is already against the wall. So I guess the question is whether the default bonds from AAA-rated countries will push them over the edge! 
Sounds like Fitzpatrick’s original message got a little lost in translation.
Finally though, there’s something that makes sense. But that probably because it’s based on fact and not someone’s misquoted opinion.
Gold traders are playing close attention to reports from Beijing that the China is thinking of boosting its gold reserves from 600 tonnes to nearer 4,000 tonnes to diversify away from paper currencies. “If true, this is a very material change,” he said.
Mr Fitzpatrick said Britain had made a mistake selling off half its gold at the bottom of the market between 1999 to 2002. “People have started to question the value of government debt,” he said.
Citigroup said the blast-off was likely to occur within two years, and possibly as soon as 2009. Gold was trading yesterday at $812 an ounce. It is well off its all-time peak of $1,030 in February but has held up much better than other commodities over the last few months – reverting to is historical role as a safe-haven store of value and a de facto currency.
Gold has tripled in value over the last seven years, vastly outperforming Wall Street and European bourses.
Well, I think gold might hit $2,000 or more over the next few years. But hopefully there won’t be any more wars.
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November 27th, 2008 at 12:49 pm
it is quite obvious world war 2 was done for the gold, and now recently what the media is hiding and not many people know about is that few years back the worlds largest gold reserves were discovered in a place called reko diq in pakistan, not very far from the afgan border, since then america has been crying about going into pakistan.
November 28th, 2008 at 12:00 pm
That’s nonsense. Gold is one of the few commodities still holding up. I would say sell gold short and go away
If Citi were so good at forecasting, then they should have sold their stock short and divested their toxic derivatives business in 2005-2006.
I do believe that the great depression ultimately lead to WW2..
November 30th, 2008 at 9:35 pm
The kitchen sink Mr. Fitzpatrick is talking about is the billions of dollars in monetary and fiscal aide that leaders around the world have been throwing at this – especially since post-Lehman failure. These BILLIONS (and I suggest you do get a newspaper, since you will find the extent of these programs to be extraordinary) have done little to abate CDS Spreads, improve Tsys, equities, or risk aversion in general. Everything is at historically high levels and the market is sensitive to the littlest bit of bad news. The Fed and Tsy are now even basically admitting that we are a bit screwed – given that they really dont know what to do anymore and will try their best to manage the situation. They dont know what will happen but they do know the kitchen sink didnt really work.
In Europe, you have a bunch of puppets who have taken forever and a decade to deliver some solutions. The structure of the EU was not meant to handle the death blow of a financial crisis and its quite evident. Genius Trichet has just NOW recognized that inflationary pressures are lessening yet still sees it as a threat! European countries – including that Britian that you mention – have enormous USD funding needs – USD denominated debts. This has thus caused the need for unlimited USD swaps lines – another kitchen sink to bail them out.
As far as war – no money, no love – you get the picture. I think its a fair assumption that in the midst of a financial crisis which has the potential of being the second or (hope not) first worst since 1900 – everyone is a bit on endge.
A note on Citigroup….I doubt your financial analyst skills are sharp enough to truly analyze the components of Citigroup’s balance sheet or exposure. If you did you would realize that the company has trimmed down its exposure to bad assets tremendously and far more agressively than competitors. Its far less levered than lets say the precious Goldman. Not to mention given its size and scope it has a tremendous amount of deposits to source from – much larger than others. Why do you think Goldman and Morgan are now bank holding problems? The attack on Citigroup’s stock began most recently with the failure of the Wachovia purchase – which was also failure of the Fed to enforce Citi’s and Wachovia’s agreement. Before that, Citigroup’s stock price YTD was certainly not the worst of the financial crisis. All in all I would suggest that you pray nothing happens to Citigroup – and educate yourself on the company and what their financial position really is among the rest. Silly rumor speculation on Citigroup could lead to some dire consequences for the economy as a whole.
Lastly, I think its important for you to understand that this crisis can certainly not be attributed to one company – and to make that claim or even allude to it is absurd and based on pure ignorance. It sounds like something that you would get off of your 10:00 news show. This problem that we are having is the result of a 25 year buildup in excess credit – caused by people who just couldnt seem to have enough. Banks didnt go out and hold guns to people’s heads to borrow more – they just wanted more. Its called greed. Citigroup – being the former largest bank in the world – would be bound to hold a great deal of this. This current crisis was set off by those toxic derivatives – but was bound to come. Our problem today was a two way exchange and now we are seeing the consequences.
December 1st, 2008 at 12:04 pm
I agree, gold is going to the moon. The global depression will sink in and the US military will put back as Obama cutting the budget, paving the way for many wars to break out around the world.
December 2nd, 2008 at 1:38 pm
Japan also expanded its monetary policy in 1990’s and had zero interest rates. I didn’t see a hyperinflation there.
December 5th, 2008 at 7:56 pm
I’m not that great at predicting macro events like the price of gold but it seems like common sense that we have a deflation problem developing. I know gold was up crazy in the 70s during hyper inflation and inflation fell a record amt in Europe just recently so it seems gold will continue to tank. then later we will have inflation, but much later it seems. Copper makes more sense and other commodities bc the developing countries will need them down the road. Cash is king
December 5th, 2008 at 8:24 pm
Bernanke is doing his best to avoid deflation by printing money hand over fist.
Giving $7 Trillion worth of bailouts with money we have to borrow is definitely inflationary in the long run.
It just might take a year or two to become apparent.