Why Gold Must be Bought Now

July 30, 2013 | By | Reply More

Despite all the anti gold sentiment expressed by analysts and media forecasters alike, the last ten days have seen the metal sustaining its position above $1300 an oz.

This indicates to us that the metal has unexpectedly strong support at this level. We also note that the professional speculators and hedge funds have increased their net long positions to a six week high of 180 tonnes although it should be observed that private traders have cut back on their long positions to equal their shorts or thereabouts.

No Change in Fundamentals

The long term fundamentals have not changed to any notable extent for many months, the steep decline in the gold price came about, in the first place, as an expected pull back and consolidation after the rapid rise to $1800 an oz  it enjoyed up to August 2011.

The decline was then accentuated  by the realisation of speculators and investors that the regular monthly dose of new fiat money, aka quantitative easing, was taking the stock market quickly back to the heights reached prior to the bubble bursting in 2008.

The need then was to realise capital to get in on the stock market act which meant, amongst other ways of raising money, selling off profitable positions in gold.

A Disaster Scenario

Realising this the pros swapped their long positions to shorts further undermining the gold price  which was just what the Fed wanted. They did not reckon on the huge demand for physical gold that these lower prices encouraged.

Suddenly the market also became aware of the very large chasm that exists between the paper price of the metal and the physical supply. So far this has not erupted into overwhelming demands for delivery on paper promises but who knows, this may be a disaster waiting in the wings.

China, India and Russia in Gold Love Trade

There is no doubt that China and Russia in particular have taken advantage of these low gold prices with current rumours suggesting that one or the other, or maybe both, are considering tying in their currencies to gold.

Since China usurped India as the top gold buying nation helped on by the Indian central banks efforts to support the rupee by introducing higher import duties and other restrictions it is noticeable that Indians are paying up to $30 an oz premiums on the the physical metal, such are the shortages.

There seems little doubt that the Indian authorities will be ineffective in preventing the illegal flow of gold into the country, such is the love for the metal enjoyed by all classes.

Deflation or Hyperinflation Is Good for Gold

Which brings us to why gold should be bought now. All investors/speculators should have heard that you sell the peaks and buy the troughs, easier said than done. How often have we missed the market by being in or out prematurely, being short too late The same goes for buying at the bottom.

It is more often by luck than judgement if you achieve that. It is possible that gold may put in another bottom as quantitative easing runs its course although the signs are that only the stock market players and not employment or business has benefited from this destructive policy.

Whether the stock market has much further to rise is questionable, ultimately a very significant crash is on the cards. We are faced with the consequences of fiat money printing which is likely in the first instance to encourage a deflationary economic environment closely followed by massive inflation. Either or both these scenarios are likely to send gold soaring.

Waiting For a Bottom is a Gamble Too Far

The point we are trying to make is not to miss the market. Forget about trying to buy at the bottom, who knows, today’s price may be the bottom. Get in while the goings good and do not risk being left behind. In the long term does it matter if you buy and find that the price drops $100 an ounce if you are as certain as any investor can be that within an acceptable time frame you may see $2000 an oz or more? Waiting for another low may prove a fatal gamble.

Will QE Carry On or Signal Interest Rate Rises

This week will see some important US data with Fridays unemployment figures showing the way. If these raise continuing doubts as to the real recovery in jobs and business we know that QE will continue. Not to do so will send the already fragile economy into a tail spin as interest rises will come into play.

Gold will likely benefit in such a scenario. If the status quo remains then the underlying strength of support at $1300 plus will probably carry forward. Trade in the markets is weak and is likely to remain so until August, meaning that it doesn’t take much to move markets up or down.

Beware of missing golds move up! That is why gold must be bought now!

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