Last year at this time the London gold fix was $1405 and currently it is a little under $1600 so no matter what anybody says the gold price trend has survived very well under the terrible global monetary crisis. To all the naysayers who said it was over, I say hold on because not only is it up but it will continue its trajectory in 2012.

The unyielding fundamentals that gold is being driven by will continue into the New Year and possibly for quite some time after so we’re probably looking at some pretty nice gold prices coming. Its behavior has been extraordinary in spite of the massive deleveraging sell-off in September from its $1920.50 high. It recently lowered again to $1534.06 due to more deleveraging linked with the mounting uneasiness about the European Union’s outcome and was booed heavily by the bears but it still manages to shine through.

And it will carry on its luminosity with the basic fundamental of debt swelling continuing as the best way for governments to ease out of their debt. How will this occur? With liquidity injections that will buy the debt in an everlasting disadvantageous manner. This, obviously, is not the solution to the overwhelming debt but the United States initialized it (after Japan) and many others have followed in suit. Japan’s ticket to debt freedom included forcing interest rates to zero and keeping them there by printing money and purchasing bonds with this paper. Indeed, the debt level in Japan is nearing ¥1 quadrillion. If that isn’t enough, their balance sheet is ¥138 trillion. The United States’ Federal Reserve balance sheet is surpassing $2.7 trillion. The worst of the worst, though, has to be the Eurozone (which lately has maintained center stage). Their balance sheet has evolved into an unprecedented €2.5 trillion. And they say that quantitative easing is not the answer! So what is occurring, then?

There are those within the ECB that are supporting QE so as to avoid another recession. It was only December when the ECB handed out €489 billion ($638 billion) in 3 year LTROs to 523 banks within the Eurozone. It didn’t last very long and it now lives under more difficulty and eurozone spreads have began their unfolding yet again. It was anticipated that the institutions would apply this large amount of discounted money to buy their own debt just as the United States’ banks drilled the earnings from mortgage supported securities sales to the Federal Reserve into US Treasuries. It all boils down to the private sector which, ultimately, finances the government with funds administered by the government. As the mediator of this process, the turnover for banks is lucrative. Zero interest rates come with benefits…

And now the Federal Reserve is expected to prolong their ZIRP assistance from mid-2013 over to 2014. And we can expect more, for sure. Look at Japan who began with their low interest rates that were supposed to last only a bit and they have persisted for two decades.

Even the large financial corporations are anticipating huge prices for gold in 2012:

• Goldman Sachs believe they will hike to $1,810
• Barclays expects then to rise to $2,000, and
• UBS to $2,050.

As long as interest rates continue as shallow as they are, the long-term trend will be very good for gold. Not many things are certain within the market, but the gold price is looking to make its mark this year. Add to that the continuing debt development, the monetary bases and central bank balance sheets, and above all, the largely positive supply and demand tendency and what we’re looking at is a fabulous long-term trend for gold. It can only go up. Yeah!

The current gold prices are not what you think. Despite the naysayers glorifying their predictions of the gold bubble, it is really on an upward trend with many obstacles in its way. You have to give gold credit for the gracious way in which it has reacted to the global crisis. What we are living is shoddier than what we endured three years ago and with that said, I remain a faithful follower of the precious yellow metal for how it has remained one of the best investments still today.

One of the differences between the financial crisis three years ago and the present is that back then there was more hope. Unfortunately this year has opened our eyes to the inefficiencies of the governing bodies which we have guiding us. Their strategies have been less than fruitful and will only deteriorate more with time. We still have the same problems we have been living with only they are more unsatisfactory, if that’s possible. The only thing one can really do is protect what you have in terms of store of value or do your research fast so you can conclude where your money is best held.

We are up against a tidal wave with higher oil prices, weak GDP growth, the Eurozone crisis, derivatives up more than $100 trillion since 2009, and China’s progression at a stand still. Must I continue? Market discernment is probably the one thing that cannot be explained yet when confidence in a faith-based money system disappears there really isn’t much left to think about. It’s a wonder that the system has held on for so long…it should have erupted years ago.

What is quite intriguing is that the New Year is going to begin with $10 trillion in financial support and turn over required and we simply do not have it. It won’t come from within and most probably not from China the way they’re going. So, what will happen? It is oil that is dominating price regulations, though. Not the Fed. Oil and the economy have an inverse relationship, which is not good. Since the correction in 2008, the price of oil has only risen and has reached its maximum in three years with $30 per barrel being higher than in 2009 and $10 higher than in 2010. This would be deemed normal if it wasn’t for the fact that now the world is in greater demand of aid than three years ago when it was afflicted with the rising price of oil.

Paul Fisher from the Bank of England says, “In 2008, governments had more leeway and cash available to stimulate their economies and bail out banks. Today that sovereign backstop is less clear…[This] is going to be more difficult than it was in 2009, given the current position of the sovereigns.”

The answer lies within economic growth. We need to grow our way out of this mess. But it is debt that is keeping us down. The credit bubble was destined to pop all on its own without the help of rising energy prices. What was allowed to occur was that the debt level increased more than income right across the board within the entire OECD because of policies that were created to pamper central banks throughout the world.

GDP numbers have not changed drastically since 2008 which signifies that $5 trillion did not help us raise GDP; we somehow balanced out. In laymen’s terms this indicates that our economy is about the same size but we need to sustain an added $5 trillion in federal debt or approximately a third more than when the trouble began. The actual GDP growth of the United States is less than the previous year which doesn’t help our situation in the least. The federal deficit for FY 2011 was $1.3 trillion (more than 10% of GDP) and we can only expect it to get worse…

As for Europe, it’s not holding its own. The Eurozone is receiving debt and ratings downgrades and an economy which is practically all but lost. It is only the projected bailouts that they can depend upon which, in turn, rely upon economic recovery and growth, both of which are not occurring. And without this support, it will all break down which means more bailouts or out-and-out defaults are in store.

This is where Ireland serves as enlightenment. It previously was given rescue funds as well as made to follow all strict methods so that equilibrium could be found. Ireland is presently in shambles because the Irish economy is plummeting severely due to the good advice of moderating its lending and dictating austerity. The lesson is that austerity condenses an economy and now the European Central Bank can blame someone else for their instituted ignorance.

There is a reason behind the 3% limit for fixed government deficits. It is the fundamental rate of GDP expansion that is traditionally comprehended to maintain sustainability within an economy. It’s okay if deficits increase alongside the economy, but when the economy falls behind the rate of interest that is required by the government, one of two things will occur: deficits will go haywire and/or taxes will increase. It doesn’t work any other way.

Where does that leave us? We still have enormous amounts of overdue derivatives and the exit of narrow-minded investors. China is also going through a stagnating period as well. With that said, I believe the picture is in total perspective: there is no way out. The only thing left is to devalue the currency on a global scale with the goal of inflating our debt obstruction.

Now you know why you can’t blame the current gold prices; for they are low due to this mess our governments have created, yet will turn into historical gold prices as soon as all currencies vanish into thin air.

The developments in the gold demand world-wide have one thing in common: to strengthen anew the extensive reign gold has enjoyed as being the definitive safe haven asset for erratic stretches.

Indeed, overall demand clocked in with a ceiling of US $57.7 billion in the third quarter of 2011. Ongoing private and institutional investment demand as well as central banks increasing their gold reserves helped reach this incredible tally.

Will incoming supply continue to quench our thirst for the precious yellow metal? Mine production and recycled gold are the ways in which this need is fulfilled. Whereas recycled gold maintains stability, it is new production which embodies the prognostic influence because it can mirror deviations within industry circumstances and investor outlook.

Similarly, in 1980, the gold mania materialized when gold supply had the same configuration as it does now with two-thirds from production and one-third from recycled product. Production progressed in the 1980s subsequent to the end of the brief mania, but now, production has already risen. In addition, as the 1980s endured, production heightened despite an intense drop in prices.

The past, present, and future are tied in some unknown manner which is why we can use the past to acknowledge the present and somewhat predict the future. If we use that reasoning, we can compare the span of 1970-1980 to modern day and use the observations to ponder where gold stands today.

First of all, it was in 1970 when the last most important interim peak in mine production was registered. Succeeding that was a 10-year recession with an eventual gold price peak in 1980. The gold price was actually floored when this ensued. The present cycle, with a peak in 2001, was followed by a seven year backslide and a trend turnaround from 2009-2011. Production subsided overall at 0.2% per year (2000-2010). Looking only at the decade average neglects the trend reversal in the last three years with gold production rising by 7.4% in 2009, 3.7% in 2010 and up 5% in the three quarters of 2011 in contrast to the same period in 2010. This most recent boost in production devoid of a previous mania could be seen as a case against there being a mania this time around. Perhaps a supply crunch doesn’t exist. Supply could balance demand and thwart the crunch from occurring. This will probably not happen, though, for quite a few reasons. The most impacting one is that we don’t see the accumulation in production being bearable. Mines are, in fact, exhausting supply and it’s more difficult every year to authorize and situate new mines.

Secondly, in 1980, gold reserves throughout the world added up to 1.1 billion ounces (34,000 metric tonnes) and production at that time was adequate enough to fulfill demand at the time for about two decades. In 2010, reserves were 1.6 billion ounces (51,000 metric tonnes) and were also sufficient to meet demand for an identical two decades, but this time production was double. This progression can be accredited to more modern mining technology as well as higher costs which permit bigger, lower-grade deposits to be mined advantageously. Once more, no supply crunch on the horizon…at least not for the moment. Furthermore, the increasing regulatory responsibilities that have been added to the discovery process have become more difficult.

The growth in the population is less than the gold production. Actually, gold production per capita, at the present, is superior to the 1970s. Apparently we’re still not seeing a lessening of the gold supply. Nevertheless, gold not being a consumer merchandise, or rather; not something people need to eat a certain amount of every day is what makes the physical amount of gold per person in the world means less than it would for other commodities. Gold is a fear indicator in the modern world. It has demand contrary to people’s confidence in other forms of money. The fact that supply has maintained a balance with population growth does not entail that supply has, or should be obligated to keep up with demand, and we can see that it hasn’t in the gold price.

The main elements of supply that exist, as in 1980, are mine production and scrap. The departure of net disinvestment from the supply angle is another bullish affinity that can be appreciated between the two decades.

Geography of mine production is a key distinction between the present gold market and the market in the past. South Africa headed the list with two-thirds of global gold production in 1970 and 55% in 1980. It was different in 2010 because no one nation took the lead for more than 14% of world mining supply. The closest was China which produced 13%. A comparable modification has developed with demand. Mainly Western countries, in 1980, consumed the gold trade. In 2000, North America and Europe had basically abandoned the arena. But now it really is a global trade once more. This is great for gold because it establishes resilience and endurance within the gold market.

The truth is there will probably be a low gold supply in the future. But what is more pressing is the demand side that overshadows the gold price. The demand for gold is more compliant than supply in general so it really doesn’t matter if there is a deficiency of gold supply from production. The precious yellow metal is a metal embraced with monetary value and if sentiment in fiat money disappears as it most probably will, the hightailing to gold security could crush any possible surplus in supply. When will this occur? Only time will tell…but get ready because it is coming.