Trading Gold for Keeps

August 14, 2013 | By | Reply More

Last week price action gave credence to those of us that believe in gold as a long term wealth protector should not worry about the torrid time the metal has been giving us since 2011.

After the long upward cycle to $1880 an oz. just two years ago, it came as no surprise that profit taking caused a correction. What did surprise many was the steady erosion of the price to $1250 an oz due in large part to the realisation that the quantitative easing programs, more realistically known as money creation, was a clear invitation to invest in stocks and shares while at the same time zero interest rates also made the bond market too good to ignore.

Hence a continuous flight from gold into more immediately productive investments

The Great Illusion

Of course the preservation of wealth has been a corner stone in the reasons to acquire gold and that has held true for millennia, nothing has changed. Preserving wealth comes into play when the value of currencies is undermined, then hard assets such as precious metals and real estate are purchased in the knowledge that these types of assets are finite, they cannot be conjured out of thin air, or for that matter, by introducing massive and so far unlimited amounts of currency backed up by nothing but hot air, into an economy.

The eventual outcome has always been rampant inflation, amongst many others in history the Romans and, more recently, the Germans, could tell the story, as could Mugabe if he a mind to.

Joe Public is Having a Torrid Time

The difference this time round is that for the middle classes with their small businesses or in vulnerable middle management are having a torrid time keeping afloat, together with the record unemployment (we mean the truthful figures!) are contributing to an almost deflationary environment.

That is not to say that essentials like food and energy have not visibly gone considerably up in price despite the official figures. The problem will arise when the economy gets back on its feet, when small businesses feel they can move forward and full time employment picks up to pre 2008 levels.

Lets not forget interest rates, which brings us to another quandary. The US can only just about service its current level of debt because of low interest rates, any reasonable increase in rates will  have dire consequences for the nation.

It seems to us that any continuance of quantative easing or money creation by any other means, is adding fuel to the already out of control fire. Is there any alternative that will not throw the economy into a massive turmoil with untold suffering among all but the fat cat bankers and mollycoddled politicians ? We think that those who trade gold for keeps may escape the worst of the coming monetary crisis.

The Sensible Investment Tactic is to Hold Gold

That scenario would be much worse than the Great US depression, the difference this time will be the amount of virtually worthless paper money in circulation, not dissimilar to Mugabe’s Zimbabwe of recent times with echoes of Germany in the 1920s. With that in mind it just has to be a sensible investment tactic to hold gold, even more than its poor relation, silver.

As we have often repeated, forget about whether the price will go lower or not, with the amount of manipulation fogging up the market no one knows when or where a bottom is or was reached. All we believe is that to trade gold for keeps now together with holding your nerve is about the best insurance against the hard times that may be just around the corner, or a few years away, but will surely come.

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