A Prediction on the Global Economy and the Gold Price

Today we read one of the best overall summaries of where the global economy currently sits.  Not from an economist.  Not from a Central Banker.  Not from a financial advisor.

But from the Board of a slightly unusual gold company we closely follow– Seabridge Gold.

Invest a few minutes of your time to read the full “Gold Market” excerpt from Seabridge’s most recent shareholder report, as it is also one of the best summaries of where we are heading.

However for the pushed for time we have summarised their main points as this:  – (somewhat strangely/unluckily??? there are 13 of them!)

  1. Things aren’t as rosy as they appear.
  2. Another collapse in asset prices (shares, real estate) is highly likely
  3. Therefore more government stimulus (read bailouts) and potential for inflation much sooner than anyone expects
  4. The developed worlds banking system is still in trouble.  Prime mortgages and commercial real estate is next to fall as a new wave of mortgage resets hits the US.  Europe is no better.
  5. China is in a government induced lending bubble
  6. Recent banking profit increases are merely due to trading and changes in accounting rules i.e. they are not real!
  7. The American consumer will not make a comeback to save the world by spending
  8. Unemployment will continue to rise and stay high for many months yet
  9. Worldwide government deficit funding required for this year is $5.3 trillion!  This can’t be met by savings so will be met by more money printing.
  10. Central banks will purchase more gold to offset risk of currencies (See our news item “Central Banks don’t want to sell their gold” to add support to this statement
  11. This deficit funding crisis poses the greatest threat to the financial system and the stability of the world’s major currencies.
  12. The commonly held deflation argument ignores historical examples of inflation rising hand in hand with unemployment and negative growth.
  13. Their overall conclusion: we are headed towards inflation, government redistribution of income (read higher taxes), loss of confidence in fiscal and monetary authorities, declining faith in fiat currencies and a much higher gold price.

Why should you believe these guys over Central Bankers, World Leaders and mainstream economists?

For one, their track record is one of predicting the current mess.  Consider this statement from their May 2007 report, and recall that this was just prior to the beginning of the current crisis:

“At Seabridge, we believe that the global liquidity boom will exhaust itself and a contraction will set in. Central Banks worldwide will try to forestall a slowdown by attempting to maintain system liquidity at any cost because they know that we are in the midst of a credit boom, not a real economic boom. Yield and credit spreads will widen as inflation expectations and perceived risk begin to mount. In these circumstances, gold will outperform all other asset classes and currencies including industrial commodities. With input costs such as oil and steel falling relative to the gold price, gold equities will outperform gold as operating margins improve. That is what we see ahead, but we cannot know when.”

Wow!  Pretty on the money so far.  Could they be wrong – yes.  But we would put more faith in those that predicted the current state of play, than governement leaders, officials and economists who did not.

The other point to note is that they are not just talking heads on TV.  They have “skin in the game”.  If they get this wrong and the global economy is in fact a-okay and the gold price goes down, they go broke.

You see, their entire business model is based upon a rising gold price.  They foresaw this current crisis and when the gold price was very low at the turn of the century they snaffled up gold resources cheaply with the intention of holding them while the gold price rose.  They don’t operate gold mines but rather just “find, evaluate, acquire, explore and develop gold deposits”.  In fact they actually sell mines that are ready to produce or partner them out to larger companies.

As they say on their website Seabbridge Gold’s objective is “effectively turning cash into gold, contrary to the gold industry’s current practice of converting gold into cash flow”.

They are turning their cash into gold – have you considered doing the same with some of yours too???



Do you agree with us and Seabridge?  Leave a comment below either way.

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