Gold Buyers at the Last Chance Saloon

June 4, 2009 | By | Reply More

After spot gold threatened to break through the $2000 an ounce level just two days ago it is now trading down to $970 having touched as low as $962 before NY opened this afternoon.

Thanks to the Chinese gold buyers are now at the ‘Last Chance’ saloon to get into the metal before the price at under a $1000 an ounce becomes a distant memory.
Mr Timothy Geithner, Secretary of the Treasury returned from China with that country’s assurances of faith in the dollar was the prime reason for the stall in gold’s advance.

The resultant strengthening, however transitory, of the dollar should be seen in a realistic light. The extent of Chinese exposure to the dollar, US bonds and dollar related assets is so great that it is hardly likely that they would publicly announce any misgivings about the currency’s strength.

Apart from anything else the Chinese have a tradition of politeness to uphold, anything resembling an announcement of doubt would be perceived as an insult to Mr Geithner and the US.

What we do know already is that they are taking soundings about alternatives to the dollar in greasing world trade – and now Russia has joined the party.

Brazil is already partnering China in trade agreements in which the dollar plays no part so that leaves only India of the important BRIC nations yet to reveal any alternative suggestions, at least not that we know of.

The intelligence and know how of Chinese and Russian politicians should not be confused with the intellectually challenged US and British political leaders of recent times.

We have had Bush bankrupting the nation by going to war to impose the American way of life on any country with oil reserves and Gordon Brown announcing well in advance that he intends to sell off 400 tonnes, about half, of Britain’s gold reserves and not understanding why the price hit rock bottom!

Both continued unabated to compound their mistakes without thought of the consequences to their countries and somehow believing that their reputations would be enhanced.

The US can breath a sigh of relief that Bush has gone while Gordon ‘Mr Prudence’ hangs on by a thread and hopefully will be kicked out of office by this time next week. A cynic would be forgiven for claiming that the imminent departure of Brown and the rest of the money grubbing incompetents in the Labour party is the sole reason for the current strengthening of the pound and the FTSE.

Whether the returning optimism in stock markets evidenced in the last few weeks will be seen as the prelude to a sustained recovery in global economies or just another dead cat bounce stirred on by the media, government spokespersons and the financial world hoping to restore the halcyon days of big profits, greedy bonuses and a disregard for any business ethics they enjoyed for a decade until 2007/8 is largely irrelevant to the future value of gold and silver.

The fact is that it is extremely doubtful that the US, European and other ‘old’economies will avoid the consequences of flooding their countries with more, and likely yet more, paper money.

Sooner or later hyperinflation will become the order of the day and it is unlikely that our political and financial masters will have the ability, or even the desire, to keep it at bay.

Before then we can anticipate a period of deflation, but both scenarios paint a convincing picture to be long gold and silver.

Their seems plenty of evidence that the strength underlying both gold and silver during the last few weeks is staying in place, opportunistic profits have been taken and rightly so, but we are strongly of the opinion that it would be wise to top up on holdings while the going is good.

Even as we write the price of gold has advanced to $978, up $8 and rising (11:01 NY time).

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