Gold Dives Just Like a South Sea Pearl Diver

March 19, 2009 | By | Reply More

The deeper a pearl diver has the courage and stamina to dive the greater is the chance of finding a priceless pearl.

We think the same applies to gold. The lower it drops the more potential wealth it will generate for brave and patient investors.

Buying the bottom for the vast majority of us is just a pipe dream but we do have the opportunity to add to our positions when those troughs, like today’s, beckon.

Of course we have to have the funds and, as there are signs that stock markets are firming up, this may present some opportunities to cash in profits or at least take manageable losses in order to be poised for greater profit opportunities elsewhere.

It will come as no surprise that gold and silver is our opportunity of choice.

As gold plunges today we notice three items of significance. The first is that it has been reported that John Paulson, the hedge fund manager who reputedly made $15 billion in 2007 by betting against sub prime mortgages, has bought an 11% stake in AngloGold Ashanti, the fourth largest world gold producer, for $1.3 billion.

The second is that US inflation reached just short of 5 % over the last twelve months.

Whether the first is fact we can only surmise but there is no disguising the inflation figure.

The third is that the largest gold backed ETF, Streetracks Gold Trust (GLD) has continued to add to its bullion holdings this week to reach its highest level yet.

Adding fuel to the fire the Bank of England minutes of the last monthly meeting discloses that the UK government will print GBP75billion  (over $105 billion) of new notes and we know that the US and Japan are following the same path.

Many analysts and government spielers have warned us that deflation on the Japanese model is the greatest economic danger that we face today.

That maybe so, but all we can see in the future is that past experience teaches us that the more money you print the greater the eventual inflation.

We do not wish to be too simplistic on this subject but we have looked in detail at the many cogent arguments for and against the ‘bail out’ plans, particularly those of the US and UK governments.

Our conclusion is that more money will continue to be thrown into the economies of the major nations and the longer this lasts the greater the risk of ‘run away’ inflation.

Shoring up failing banks, insurers and manufacturers past their ‘sell by’ dates may result in a short term respite from the eventual consequences of the greed and corruption that has dictated the performance of their executives while politicians turn a blind, ignorant or self motivated eye.

The longer it takes before Obama and his administration, not forgetting his lapdogs in the UK, to face up to the painful decisions that must be made to put their financial worlds in order, the more will be the suffering of this and future generations.

Our guess is that John Paulson shares some of our views and has taken a large stake in AngloGold Ashanti as there seems no other viable alternative to the malleable metal as a hedge against the inflationary holocaust to come.

It seems evident to us that some of the most farsighted investment minds are taking positive positions in gold while misguided short-term speculators are hoping that the current bounce in stocks will herald the solution to the economic woes of the world.

We repeat – stay clear of gold and silver at your peril!

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