African Gold Group stock forecast (PINK:AGGFF, CVE:AGG)

The biggest news out of African Gold is the company’s upcoming resource estimate at its Kobada project. Those numbers are expected sometime this month.

This post is part of series where we’re checking in on the Top 500 junior gold and silver mining stocks profiled in our book Top 500 Gold and Silver Mining Stocks: Metalproofing Your Portfolio from the Coming Inflation Shock.

Performance: First, let’s compare African Gold Group’s performance against the AMEX Gold Bugs Index (HUI) – a basket of industry-leading gold stocks.

Time Span AGONF Performance HUI Performance
1 Month +48% +13%
3 Month +6% +3%
YTD -41% -12%

African Gold Group’s following the usual trend: as a junior gold mining stock, it’s more volatile than shares in larger mining companies. When times are good, they’re really good for small cap miners. When times are bad, the declines are steeper.

Profile: African Gold Group, Inc., holds rights to five projects: three in Ghana and two in Mali. The Company’s most advanced asset is its Kobada gold project in Mali. The Kobada Trend contains an inferred mineral resource of 740,000 ounces of gold at a 0.3 g/t gold cutoff (recently upgraded to 1.1 million ounces), and the company believes that Kobada could be a multi-million ounce deposit. African Gold’s Ghana property also includes land abutting Keegan Resources’ holdings. http://www.africangoldgroup.ca/

Risks: With an average trading volume of 20,500 shares per day, volume on AGONF is low, but not too low. Just keep in mind that taking a large position in a small-cap stock means you may have to wait a long time to find buyers for all your shares. Volume is slightly higher on the CVE, where an average of 44K shares trade hands daily.

Recent News: The biggest news out of African Gold is the company’s upcoming resource estimate at its Kobada project. Those numbers are expected sometime this month.

“(Our resource estimate) will be upgraded to indicated from inferred and a percentage of that will go into measured,” company founder Nikiforuk told the Northern Miner in April. “We also anticipate a meaningful increase in grade.”

Step-out holes drilled at the site this spring included highlights of 70 metres of 1.83 g/t gold and 84 metres of 1.26 grams gold. If the company’s resource estimate is significantly higher, expect a boost in share price.

Last year’s preliminary economic assessment indicated that “the project could produce gold at US$470.90 per oz. processing 20,000 tonnes per day, for a total of 7 million tonnes a year” (per Northern Miner). The project currently boasts an inferred resource of 1.1 million ounces of gold.

Check out our book Top 500 Gold and Silver Mining Stocks: Metalproofing Your Portfolio from the Coming Inflation Shock (pictured above) to uncover more undiscovered gold and silver mining stocks.

Silver prices set to surge higher

Bernanke didn’t say the Fed “may” stimulate, he said the Fed “will” stimulate. That was all it took. Gold and silver prices were off to the races.

Silver prices rocketed higher on Friday thanks to hints from Federal Reserve Chairman Ben Bernanke that QE3 could be around the corner. Prices for the white metal traded in a narrow range around $30.70 an ounce Wednesday and Thursday in the run-up to Bernanke’s speech.

Early Friday, prices started climbing and they didn’t stop until the markets closed. By the end of the day, silver was up to $31.74 an ounce – a gain of 4.58% in a single day of trading. The actual quote that had traders salivating is (in typical Bernanke fashion) vague:

“Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability,” he said (per IBD).

Bernanke didn’t say the Fed “may” stimulate, he said the Fed “will” stimulate. That was all it took. Shares in gold and silver mining stocks were off to the races. Majors like Silver Wheaton (NYSE:SLW) rose 5.2 percent and Silver Standard (NASDAQ:SSRI) climbed 7.9 percent. Some small-cap miners did even better with Great Panther Silver (NYSEAMEX:GPL) rocketing up more than 11 percent.

“My friend Eric Sprott of Sprott Asset Management is one of the smartest men I’ve ever met in my life and a real detail guy – and he thinks silver is going to go well above $100, and you might even be able to pick a number for silver,” Bill Murphy founder and chairman of the Gold Anti-Trust Action Committee (GATA) said in a recent interview with Financial Sense. “I think … people that are willing to do their homework and be patient and accumulate these cheap gold and silver shares will make fortunes in the years ahead.”

Of course, anytime there’s a run-up in gold and silver prices, it doesn’t happen smoothly. Since precious metals act as a barometer of the wider economy, political changes and economic numbers can cause large price swings. When prices are on the rise, though, it can happen violently. And it looks like we could be in the midst of another big upswing.

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Adventure Gold Inc. (PINK:AGONF, CVE:AGE) stock forecast

Adventure Gold Inc. holds rights to more than two dozen potential gold properties in the Abitibi Greenstone Belt located in north-western Quebec and north-eastern Ontario.

This post is part of series where we’re checking in on the Top 500 junior gold and silver mining stocks profiled in our book Top 500 Gold and Silver Mining Stocks: Metalproofing Your Portfolio from the Coming Inflation Shock.

Performance: First, let’s compare Adventure Gold’s performance against the AMEX Gold Bugs Index (HUI) – a basket of industry-leading gold stocks.

Time Span AGONF Performance HUI Performance
1 Month +61% +13%
3 Month +44% +3%
YTD -15% -12%

Adventure Gold’s following the usual trend: it’s more volatile than larger equities. When times are good, they’re really good for small cap miners. When times are bad, the declines are steeper. Still, AGONF’s performance over the past three months has been particularly impressive.

Profile: Adventure Gold Inc. holds rights to more than two dozen potential gold properties in the Abitibi Greenstone Belt located in north-western Quebec and north-eastern Ontario. The company plans to spend $14 million on exploration over the next five years. Most recently, Phase 2 drilling has begun on the Lapaska Property in Quebec. Highlights from previous drilling there showed 1.0 g/t gold over 103.4m including 10.3 g/t gold over 3.8m. http://www.adventure-gold.com/

Risks: Volume on AGONF is extremely low. Some days no shares trade hands. That means that even if you want to sell your shares, there might not be a buyer out there. If there is a buyer, they probably want a discount to the current quote. Volume currently averages 2,500 shares per day.

Recent News: Phase III drilling has kicked off on the company’s 100%-owned Pascalis-Colombiere gold property in the Val-d’Or mining camp in Quebec. The most promising hole showed 3.1 g/t Au over 27.0 metres. Click for more drilling results. Pascalis-Colombiere is a proven property. It yielded just over 200,000 ounces of gold for Cambior Inc. (now IAMGOLD) between 1989 and 1993. That’s a plus over more speculative explorers with unproven plots of land.

Adventure Gold had $5 million on hand as of April, and they have partnerships with two major mining companies in Agnico Eagle (Dubuisson in Val d’Or) and Lake Shore Gold and RT Minerals (Meunier-144 in Timmins West). They’re planning $2 million in drilling through next April with additional work commitments of $10 million over the next 5 years. Promising results would be a boon to the company’s shares.

Check out our book Top 500 Gold and Silver Mining Stocks: Metalproofing Your Portfolio from the Coming Inflation Shock (pictured above) to uncover more undiscovered gold and silver mining stocks.

How to pick gold stock takeover targets in 2012

With gold mining stocks hovering near two-years low, the mining sector is looking ripe for consolidation. Here are three tips for identifying potential gold mining takeover targets.

“The gold miners are cheaper today versus the price of gold than at any time in this 12-year bull market,” Fred Hickey of the Barron’s Roundtable said recently (per IBT). Indeed, gold stocks are hovering near two-years low, and the mining sector is looking ripe for consolidation. Here are three tips for identifying potential gold mining takeover targets:

1) Follow the pros. One of my favorite tactics for identifying strong junior mining companies is by looking at the companies professionals are investing in. A great starting place is the Market Vectors Junior Gold Miners ETF (NYSE:GDXJ). This ETF invests in a basket of junior gold mining stocks, and the fund regularly updates its holdings. As of right now, GDXJ holds shares in 82 companies (download the excel file here), and it reads like a who’s who in the industry – particularly when you’re looking at the miners towards the top of the list.

Right now, GDXJ likes Perseus Mining (TSE:PRU), Silvercorp Metal (NYSE:SVM), Medusa Mining (ASX:MML), Rubicon Minerals (AMEX:RBY), Endeavour Silver (NYSE:EXK), Evolution Mining (ASX:CAH) and Aurizon Mines (AMEX:AZK) among others.

2) Look at past acquisitions. Perhaps the best way to see which gold mining stocks are worthy of acquiring is by looking at past acquisitions for clues. In March, for example, Pan American Silver Corp. (NASDAQ:PAAS) completed its acquisition of gold and silver mining company Minefinders Corp. Ltd. Let’s take a look at what made Minefinders a tantalizing takeover target:

  • A producing gold and silver mine at the multi-million ounce Dolores project in Northern Mexico.
  • 2.34 million ounces of proven and probable gold (as of 2010) as well as 119 million ounces of proven and probable silver.
  • Low cash costs of $450-$500 per gold ounce equivalent.
  • A small debt load and more than $200 million in cash before the acquisition

Find a company with similar prospects and you’ve probably identified a takeover target.

3) Positive cashflow. It seems obvious, but a lot of beginning gold and silver investors like the idea of getting in on a junior mining stock before they hit the mother lode during exploratory drilling. In my mind, that’s a lot like gambling, and I encourage investors to look instead at junior gold miners that are already pulling ore out of the ground.

The majors want to acquire companies that have made it through the often arduous permitting process, have proven reserves and are already generating cashflow. At that point, the major just needs to bring in its deep pockets and mining expertise to join in the reaping of rewards.

So, while it’s definitely tempting to try to guess which junior mining company is going to uncover the next Brucejack project, you’re a lot safer buying shares in a miner that’s already making money. It’s not as glamorous, but trust me – it’s probably more profitable.

Three reasons $6,000 gold makes sense

If we look at gold from the perspective of an offensive buyer, their predictions of $6,000 gold start to make some sense. Here are three reasons why $6,000 gold just might come about.

Despite accusations that it’s a worthless chunk of metal, gold prices have risen for the past 12 years. That’s more than a decade of net buying, and those buyers must have a good reason to keep pushing up gold’s price.

In general, I break gold buyers into two camps: defensive buyers and offensive buyers. Defensive buyers are temporarily trying to protect their wealth from effects of inflation. Offensive buyers are the so-called “gold bugs” – the investors who believe that we’re in the midst of a financial crisis that can only be resolved in one way: a string of sovereign defaults. Those offensive buyers don’t plan on selling until we have some new, multi-national gold-backed monetary system.

If we look at gold from the perspective of an offensive buyer, their predictions of $6,000 gold start to make some sense. Here are three reasons why $6,000 gold just might come about:

1) A solid track record. $6,000 sounds like an awful lot of money, but that’s actually just 4 times higher than gold’s current price around $1,590 an ounce. During the 1970s, gold went up 24 times. If we look at gold’s starting point 12 years ago around $250 an ounce and multiply that by 24, we end up at $6,000 an ounce. Gold went up that radically in the past, so it can surely happen in the future.

2) The Dow/gold ratio. Historically, the Dow/gold ratio tends to revert to 2:1. At the time of this writing, the Dow Jones Industrial Average stands at 12,835 and gold’s selling for $1,591. That’s a Dow/gold ratio north of 8. If the Dow were to stay at its current levels (floundering sideways in the years to come), and the Dow/gold ratio were to return to historical means, we’d be looking at gold at $6,000 an ounce.

3) Sovereign defaults seem imminent. It’s hard to believe there are countries with debt that rivals our own, but Greece is under the magnifying glass. The Eurozone “is on a path that leads to eventual dismantling,” Peter Tchir of TF Market Advisors wrote in a note to clients on Monday (per IB Times), and Greece looks like it’s poised to be the first domino that falls. Sunday’s election in the country is still yet to yield a coalition government. That’s prompted warnings from the EU “that Greece would get no more payments from the $170 billion deal approved in March if it did not enact roughly $15 billion in cuts by June” (per USAToday).

If Greece stops getting bailout cash, the country would slide into default within weeks. That might not happen in June, but it seems imminent, and it would certainly raise doubts about the future of the Euro.

If people start doubting the future of a currency, gold will get a shot of adrenaline that’ll push it up rapidly. Throw a few currency defaults into the mix and there are few places besides gold to stash your cash. Viewed in that light, $6,000 gold seems more and more likely.

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Will mushrooming supply crush gold and silver prices in the years to come?

One of the most common arguments bears levy against gold and silver is the fact that record prices mean more gold and silver mines. With those mines, they argue, comes a glut of supply.

One of the most common arguments bears levy against gold and silver is the fact that record prices mean more gold and silver mines. With those mines, they argue, comes a glut of supply that could crush the precious metals markets.

One of the leading voices in this debate is Dr. Paul Walker of precious metals consultancy GFMS Thomson Reuters. At a conference last week in Dubai, Dr. Walker pointed out that it takes some $120-$150 billion of investment demand every year just to keep gold prices flat – not to mention see prices climb higher (per Resource Investor).

That a lot of cash to maintain a baseline, and I would argue that bodes well for silver prices.

“The amount of silver that’s available for investment each year is 450 million ounces and the amount of gold that’s available for purchase is about 70 million ounces, which means you have a ratio of about six-and-a-half to one is amount of silver you can buy versus gold,” Eric Sprott said in a recent interview (per ETFDailyNews).

At current prices, that means investment demand needs to grow by $13.5 billion to keep silver prices where they are. That’s far less than the $120 billion gold prices will need to stay afloat.

Still, silver prices tend to follow gold prices as both metals act as stores of value during periods of inflation. The main indicator for whether or not gold and silver prices can keep up with supply then is the expectation of inflation, and expectations are a fickle thing.

As Dr. Walker pointed out last week, it’s probably not supply that gold and silver investors should be concerned about, but rather the possibility that the Federal Reserve might raise interest rates in an attempt to begin strengthening the dollar. That, he argues, could be the true “Black Swan” event we’ve all been worried about.

We’re not there yet, though. In fact, we just might see all-time record high gold and silver prices again before we ever see the interest rates rise. Check out our posts Silver prices setting up for 30-year high? and Why Eric Sprott believes silver prices will triple to $100 an ounce in 2012 for more.

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The pros and cons of going back to the gold standard in the U.S.

While I do think there needs to be a return to fiscal responsibility, I’m not sure a single sovereign government can do it alone. What I see as more likely is a federation…

In the wake of the news that Utah has officially made gold and silver into currencies, Bloomberg TV hosted some heavy hitters on to ask them point blank: what’s the case for bringing back the gold standard in the U.S.?

[Check out our post It’s law: Gold and silver approved as currency in Utah for more on the gold standard.]

“It’s the ultimate currency,” Rob McEwen, CEO of McEwen Mining, says in the interview. “It can’t be replicated quickly, and it’s a store of value that’s crossed the millenium. Right now, we’re seeing the purchasing power decrease, and they’re taking away from everybody that puts money in the bank.”

“The horse is already out of the barn,” Michael Crofton, CEO of Philadelphia Trust, retorts. “I don’t think (a gold standard) could ever work given the amount of financing we have to do; both deficit financing and just operational financing.”

If there’s enough will for a new economic model, though, politicians could make it happen. It just wouldn’t come for free. There are a number of pros and cons to a gold standard. We’ve outlined several of the biggest here based on the interview with McEwen and Crofton and our own research.

Pros of bringing back the gold standard in the U.S.

  • Reducing the likelihood of another black swan event (hyperinflation, the collapse of financial institutions, etc.) that could cripple the global economy
  • Bringing back fiscal discipline in Washington – forcing politicians to clean up programs like Medicare and social security
  • It can be done. There’s precedent for it, with many nations – including the U.S. – operating with gold-backed currency for more than 100 years
  • Price stability
  • A reduction in the number of economic booms and busts
  • A system that rewards savers rather than debtors

Cons of bringing back the gold standard in the U.S.

  • Switching to a gold standard would shift the power from debtor nations (like the U.S. and Europe) to creditor nations (like China).
  • The gold standard would eliminate the need for a reserve currency – stripping yet more power away from the U.S.
  • Limits would be imposed on how much governments can borrow during crises/li>
  • Gold prices would need to be set by governments, and that could potentially give governments the power to manipulate currencies
  • Less ability for governments to stimulate growth in their economies

A different approach to the gold standard

While I do think there needs to be a return to fiscal responsibility, I’m not sure a single sovereign government could make the transition alone. A more likely solution? A federation of countries or global financial institutions that align to back a fee-based debit card system that lets buyers and sellers convert credits into physical gold or silver.

This electronic system could take deposits in any number of currencies. That cash could then be spent like cash in a normal debit account or redeemed for metal.

Individuals could use the system to protect themselves from inflation or as a shelter during tough economic times. The global binge on cheap credit has to come to an end at some point, and the solution just might be a mix of fiat and gold-backed money.

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Why Commerzbank believes gold will hit an ‘all-time high’ by end of 2012

Even though gold prices are up 6.8 percent since the start of 2012, momentum for the metals seems to have waned. Commerzbank believes that’s temporary. Here’s why.

With gold prices up 6.8 percent since the start of 2012, it’s tough to say it’s been a bad year for gold, but momentum for the metals seems to have waned.

“Right now, the disappointment of the gold bulls, you can actually feel it,” Eugen Weinberg, head of commodities research at Commerzbank AG, told Bloomberg during an interview early in April. While Weinberg believes this will present a buying opportunity “in the coming months,” it probably won’t happen soon. Even in early April, he was predicting gold would dip through June or July – perhaps below $1,600 an ounce.

The malaise in the gold market is probably due in part to seasonal trends, and in part to a need for the metal to cool after an unprecedented, two-year surge during which investors saw prices climb from $900 to $1,900 an ounce.

It’s been tough for gold bulls to stomach, though, as prices in other commodities have outperformed gold. Brent crude, for instance has nearly doubled gold’s performance year to date, with the commodity up 12.5 percent. Gasoline prices are up 12.19 percent, and soybean prices are up 12.35 percent year-to-date (per Index Mundi).

Weinberg argues that gold doesn’t behave like commodities such as oil and grains because it’s not. In his words, it’s a currency, and there are a lot of factors that are colluding to drive down gold as a currency. Specifically, Weinberg cites three things:

  • The Fed is signaling QE3 is less and less likely
  • The global economy is showing early signs of a recovery
  • The dollar is strengthening as other economies pump more cash into their systems

Still, Weinberg remains “structurally bullish” on gold.

“I’m staying bullish on the longer-term and believe that the negative real interest rates, the inflation fears, and longer-term concerns about the economy are likely to keep the prices, the long-term trend intact and the prices are likely to reach another all-time high by year-end.”

The market’s overly optimistic on the state of the economy, Weinberg argues. But we’re not out of the woods yet, and that fact should start hitting home come mid-summer. When it does, gold prices will once again power higher.

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Warning: Gold and silver prices have further to fall before their summer lows

Gold’s going through a much-needed consolidation period that probably has a few more months to play out. Here’s why and how long we think it will last.

Gold and silver have officially entered the pre-summer doldrums. And that’s got some investors wondering if the decade-long bull market in precious metals is coming to a close. In fact, it looks like the metal’s going through a much-needed consolidation period that probably has a few more months to play out. Here’s why:

1) The consolidation could last 15 months. Gold’s run from $900 to $1,900 an ounce was a largely uninterrupted 25-month sprint, and that means we should expect a consolidation. In fact, this current consolidation hasn’t been long enough based on gold price corrections in the past, according to Jordan Roy-Byrne, the proprietor of Trendsman Research.

“This 25-month advance has been followed by an 8-month correction,” Roy-Byrne writes. “Using Fibonacci retracements implies a ‘time’ correction of 9.5 months, 12.5 months or 15.5 months. This indicates that Gold should correct (in terms of time) for at least few more months.”

2) Gold speculators are on holiday. “Open interest (for COMEX gold) stands at 1,284.9 tonnes – a new 12-month low,” Standard Bank wrote in its Commodities Daily report on April 23, 2012. “ETFs are still net sellers of gold, with 2.2 tonnes sold over the past week. However, the modest nature of the selling is once again a sign that ETFs do not have a particularly bearish view either.”

It’s almost as if gold investors aren’t bullish or bearish. They’re just plain apathetic right now. And that will probably continue until we get a catalyst for a big move up or down (see our post Say hello to the catalysts that could push gold prices up overnight for more).

3) Fears of recession linger. The disappointing GDP numbers released last week didn’t make investors want to run out and buy precious metals. In fact, the general consensus is that things are going to get worse before they get better. If that’s the case, commodities (including oil, precious metals and base metals) will likely suffer in the short-term, then rocket higher before the recession starts to lift or Bernanke announces a new round of quantitative easing.

“Virtually all commodities made a sharp correction in the 2008 selloff,” writes Robert Hallberg at Seeking Alpha. “Oil and silver were hit the worst and even gold made a sharp downturn. But by the time we were out of the recession gold had already made new highs and silver [was] back to where it started while oil was still down.”

4) Gold aiming for $1,500s? The current gold price correction is “shaking out every weak-handed holder possible,” Paul Schatz, president of Heritage Capital, tells Money News. “But I think it’s going to bottom some time this quarter.”

Schatz sees prices dipping into the $1,500s, before starting a fresh climb – one that could see gold prices break $2,000 an ounce. If that’s the case, look for more pain before we start seeing profits in gold.

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How realistic is $5,000 gold?

The way I view it, there are two scenarios that could push gold prices up to $5,000 an ounce: 1) A slow and steady upward rise in metal prices as governments continue devaluing their currencies; or 2) a…

The way I view it, there are two scenarios that could push gold prices up to $5,000 an ounce: 1) A slow and steady upward rise in metal prices as governments continue devaluing their currencies; or 2) a panic-fueled scramble out of just about every asset class outside of precious metals and tangible assets.

The first option is looking increasingly unlikely. “From what we know about commodity cycles going back into the 1700s, the average bull cycle lasts about 17 years,” John E. LaForge (who heads up Ned Davis Research’s Commodity Team) said in a recent interview with Mineweb. “This commodity cycle has now gone 11 years. Typically the first 10 years of those cycles is when a lot of that easy money is made. That’s when things like gold go up seven times from $250/oz to $1,700/oz. If gold increased seven times from $1,600-1,700/oz, that would equate to $10,000/oz. To get another seven-fold increase from here would be tough.”

Indeed, major investment firms have started paring back their 2012 and 2013 forecasts on gold prices. Citigroup, for instance, forecasts the metal hitting $1,718 an ounce in 2012 and $1,835 an ounce in 2013 – that’s 4 percent less than their last 2013 forecast per Marketwatch.

By 2014, analysts are expecting the Federal Reserve to start closing the spigot on the easy money we’ve been enjoying. Once interest rates start climbing, the dollar should rise and gold prices would likely taper off. Silver will be hit even harder in that scenario, Citi says (see our post: Why Citi says investors should stay away from silver).

As a slow and steady rise toward $5,000 an ounce gold looks increasingly unlikely, that leaves just one other scenario that could push us there: a black swan – some unexpected Lehman Brothers-style collapse or sovereign default that sucker-punches the global economy and leaves investors running for the hills.

There are plenty of candidates that could lead to an investor panic:

  • A breakup or re-organization of the Eurozone
  • A sovereign default in Europe, Asia or elsewhere
  • A sudden spike in bond yields in the U.S. – meaning investors start losing confidence in the U.S. government’s ability to pay back its debt
  • The collapse of a major international bank

“As more and more of this money is printed everywhere, not just in the U.S. but also in the Eurozone, Japan, China and elsewhere, there’s going to be a realization sometime in the next three to five years that maybe the $20 sitting in a pocket isn’t worth what it used to be,” LaForge says. “How do I protect myself? People are going to start looking more toward hard assets. Gold is one of those. Land could be another one. But gold is clearly something you can pick up and move.”

No one wants to see an economic collapse, but pretending warning signs (i.e. the threat of default in Italy, Spain or Greece) aren’t out there is exactly how we could end up with one. If the U.S. government and other governments around the world can restrain spending, $5,000 gold will probably remain one of those mythical, pie-in-the-sky numbers that we never see.

The problem is, governments have trouble reigning in their spending when there’s absolutely nothing backing up their currencies. That makes me think an economic calamity is possible in the coming years. I don’t necessarily see it leading to $5,000 gold (although $2,500 gold definitely looks possible). I do, however, expect to see the emergence of a global, gold-backed currency – one that holds governments and banks alike accountable for their spending.

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