Just 3 days into the new administration (Friday Jan 23, 2009) gold is up $40 or so to $897 per oz. The most interesting thing about this rise is the surprise among gold bugs that the Commitment of Traders report shows the bullion banks reversing their previous position and going long.
Gold Bugs: Wake up. Everybody should know by now that the New Guys are Keynesians and love a lot of what FDR did. This means they will do everything they can to stop deflation and one thing they will almost certainly copy is FDR’s devaluing of the dollar against gold as an anti-deflation device. FDR moved the dollar from $20 to $35 per oz, a 75% devaluation, so if the New Guys just copycat this pattern gold will go above $1600 per oz fairly quickly.
Many people state that the New Guys will not devalue gold right away because first they will have to make it illegal for US citizens to own gold like FDR did. FDR had to get gold out of use as currency before he devalued it which is why he outlawed ownership. This is not needed today as we don’t use gold coins or scrip.
One more reason that the New Guys will devalue gold: physical gold owned by citizens is a plus because increasing the value of gold will offset some of the other asset value declines in stocks and housing.
As this is purely a manipulation, I bet that gold will not go above the old inflation adjusted high of $2000.