Significant Signs That Favour Gold

October 6, 2008 | By | Reply More

Despite the financial turmoil in markets worldwide there are small but significant signs that make the prospect for our favourite metal look enticing.

The problem is that most of these indicators have been around for as long as the crisis has been developing.

We could have said  “is gold a buy” at any time since the start of the year and even much earlier and come up with the same answer – yes!

 

Depending upon the timing, gold has been a buy more often than not, especially for those who have followed those two old and valuable pieces of trading advice “follow the trend” and “ buy (sell) the dips and sell (buy) the peaks.

We are now near the crossroads, soon we will know whether governments bail out plans, which consist of injecting new paper money into the worldwide banking system and at the same time lowering interest rates will be successful in encouraging a return to the spend and borrow environment that brought about our current woes in the first place.

At the same time, in an attempt to retain the confidence of countries such as China that are massive holders of dollar denominated assets, it has been policy to keep the price of gold from ascending to the heights at the expense of the dollar.

The enormous inflationary pressures coming into worldwide monetary systems would, in saner times, led rational investors to preserve their wealth in the only viable alternative, pushing the gold price up as a consequence.

We have no doubt that despite all the politically motivated rescue plans conceived by self interested, sometimes corrupt and frequently mentally impoverished so called representatives of the people and their placemen, the immutable laws of supply and demand will not be denied.

So in a nutshell what are the facts?

In the first place there is now evidence that investors have not changed their attitudes towards gold.

In the face of a more or less static price for paper gold we are told that physical gold, together with silver, principally in the form of coins is in very short supply with mints applying severe quota restrictions and even running out of stocks.

We also read of dealers having no difficulty in applying premiums that can bring the gold content price as much as $50 above the paper price.

Followers of this website will be familiar with other bullish arguments in support of the gold price, but it is also worth mentioning that the increasing need for liquidity throughout the investing community in the developed world is a not an insignificant bearish factor although we believe an end to this to be in sight, maybe within the next two weeks.

We argue that it is evident that the US economy is the weakest, and most vulnerable of all the developed nations, with the exception of the UK.

The Euro zone is a diverse group of nations that in the present critical circumstances is unlikely to come up with a coordinated plan of action.

Germany and France are the two heavy hitters, both are likely to come up with reasonably acceptable answers for two reasons, they are by far the most dominant industrial nations in the zone and their leaders show evidence of a far better grasp of both the short and the long term implications of the loss of confidence in the banks and the markets.

For example, Germany has stated that they will guarantee all bank deposits, the reasoning being that, with such a deposit, no German Bank need fear or expect a rush of withdrawals by depositors. The result is the German central bank is unlikely to ever ante up!

At the same time the Prime Cretin of the UK seems incapable of grasping that fact has criticised the Irish for putting the same guarantees in place, and is patting himself on the back by upping guarantees from GBP35000 to GBP50,000  (circa $65,000 to $90,000) while at the same time not able to grasp the fact that if another major UK bank goes down the government will have no choice but to either take over, that is nationalise the bank or fund a buyout by another bank.

Apart from the many other obvious implications that would result from any lesser course of action, that really would result in a total and unprecedented electoral defeat for the most incompetent UK administration since the last Labour government had to be bailed out by the IMF

With the forthcoming presidential election in the US accompanied by all the spin, hype, TV and other assorted media coverage is it any wonder that Mr Bush and those of his acolytes wishing to preserve their lucrative jobs in a new Republican administration are so reluctant to take any immediate decisive action other than short term solutions to temporarily paper over the cracks.

Any realistic remedial solutions imposed before the election would incur hardship on almost every US family, bankers, Wall Street, politicians and their friends excepted, and throw the Republicans out for a decade or more.

The big question is will either Obama or McCain and their appointees have the determination and the ability to construct effective but unpopular remedies and legislation to allow the US to retain its economic leadership of the world.

Not a chance! Buy gold!

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