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As central banks slash interest rates (the EU, Australia and Britain are likely to have emergency rate cuts again this week) and attempt to flood the world with cheap money (to prevent crippling deflation) and government debt surges we are likely to see significant weakness in currency and more particularly bond markets. In the medium to long term, bond prices are likely to fall sharply (particularly long dated bonds) and yields rise from their near historic lows. A percentage of the outflows from the bond market is sure to enter the gold market which should see gold rally to its inflation adjusted high of $2,400/oz in the next 2 to 5 years.
This is especially the case as the bond market is massive – the value of the international bond market is an estimated $68 trillion of which the size of outstanding U.S. bond market debt is more than half (the amount of derivatives outstanding is more than $500 trillion). All the refined gold (0.9999 pure) in the world could fit into is a tiny 25 metre square cube and thus if even a fraction of the money that will flow out of bond markets in the coming years (particularly as the Baby Boomers begin to retire) moves into the safety of gold we are likely to see sharply higher gold prices in all currencies in the coming years.