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CitiGroup Says: Gold To Hit $2,000 - Wars To Follow

By: Steve Johnson

12/2/2008 - 16 Comments

The chief technical strategist at the largest financial institution in the US, Citigroup, which has been bailed out twice over the last year, is now talking about a dramatic increase in gold prices.

According to an article on,,

Gold traders are paying close attention to reports from Beijing that 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,” said Tom Fitzpatrick, the bank’s chief technical strategist.

Like the other financial firms, CitiGroup has been wrong many times over the last few years and if they really knew what they were talking about they wouldn’t have gotten into the sub-prime mortgage business in first place and they would have shorted their own shares, but that’s another story.  The point is that their chief technical strategist, Tom Fitzpatrick is suggesting that Gold could go to the moon.

If China tries to re-invest some of its $2 trillion dollars in sovereign wealth funds into gold, the global economy would be in big trouble as the dollar would lose value very quickly and the US economy would be in even bigger trouble.  Remember the US government borrows $1-2 billion per day just to operate its budget. Without China’s continued investment in the US, the US government would be forced to print money to finance its budget and national deficit.

Suspended Gold Orders

Another interest development is that the company that Peter Schiff uses to sell gold stored in Australia (Perth Mint) has just suspended all orders for gold and silver coins (as of Nov 27th) because of the existing back log of orders. 

Gold Has Held Up in the Economic Crisis

Gold is down from its high of over $1000/onces, but it has held up better then any other market or commodity over the last few months of global panic selling.  Gold, unlike other commodities, is a monetary metal and hence does not suffer from the same economic fallout experienced by industrial commodities when the economy slows down.  Unlike silver or platinum which is used to produce industrial products like computers and rocket engines, Gold is money.

Most of the gold ever mined still exists today with the additional annual production adding roughly 2% to above ground gold stocks year after year.  The gold used in jewelry fabrication is very small in relation to the gold supply.  So, even if jewelry demand completely stops, gold will still be in high demand because it is money – real money. 

The increase or decrease in the price of gold is primary dependent of how willing existing gold investors are to part with their holdings, and given the current economic conditions, I don’t think a lot of central banks are going to be dumping their gold reserves on the market.

In fact the amount of gold being sold by central banks is decreasing, as a recent article on the reported.

“Gold sales under the Central Bank Gold Agreement have been declining. The Agreement, which was signed in 1999, restricts Central Banks to the sale of 500 tonnes of gold a year. In 2007/08, just 345.5 tonnes were sold. Indications are that even less will be sold in the 2008/09 year, with both Germany's Bundesbank and the Swiss National Bank announcing they do not intend to make any more material sales.”

Silver Investors Switching to Gold

Even Robert Kiyosaki, author of Rich Dad Poor Dad, has recently switched from a silver investor to a gold investor as he describes How the Financial Crisis Was Built Into the System in his latest yahoo finance article.

Where he says,

“We're on the eve of financial destruction, and that's why it's in gold I trust. I'd rather be a victor than a victim.”

Wars To Follow

I hope Citigroup is right about gold prices increasing, but wrong about wars to follow.  If gold prices drastically increase, the global economic is surely going to be suffering from high inflation.  High inflation will wipe out savings accounts and create a lot of anxiety, which could lead to wars.  Especially if the US is forced to drastically cut its military and retract its forces around the world that are acting as global peacekeepers to many parts of the world. Nobody wants to see WWIII.

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