What's Holding Gold Back?

Peter Schiff writes:

Gold first broke $1,200 on December 2, 2009; nine months later, instead of witnessing the birth of the full-on gold boom I have long anticipated, the yellow metal has gained a modest 4%. Fortunately, it has spent the summer solidly above $1,150, which should put to rest the claim that we are seeing an exponential gold bubble like we saw in 1980. And those waiting for the "big pullback" to $8-900 might be seeing the futility in their cause. But I never doubted the strength of this secular bull market. In fact, I still maintain that gold is grossly undervalued. So, what's holding gold back?...

In the FY2010 budget, the federal government is spending 49% more than it is taking in revenue per year, adding to a national debt that is now 98.5% of GDP. Compare this to Greece, which is spending 33.5% more than revenue and has a debt of 113% of GDP. And the political climate here is just as hostile to even the mention of austerity. Unlike the EU, the US has guaranteed the ongoing viability of mortgage holders, major corporations, the states, and its own bloated social programs. Unlike Japan, the citizens can't be persuaded to shoulder these burdens because they are broke too...

However, Fed Chairman Bernanke has pledged to paper the world with new dollars if he sees so much as an hint of deflation. This is a virtual guarantee, from the only man with the power to make it, that Treasuries will be a bad bet under his tenure and that the dollar will fall relative to gold. Gold will be the real safe haven...

I maintain, based on historical comparisons, that the bottom of this depression will likely see the dow/gold ratio hit 1:1. This means that we are either in for a major decline in the Dow (unlikely) or an unprecedented rise in gold (likely). The US bond bubble is just like its predecessors in real estate and tech -- tedious to wait out but quick to blow up. Gold may be holding back now, but when the markets start to move, you better hope you chose the right safe haven.

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