Look at it this way, if you are an emerging market economy and you think your currency will drop you buy it right? There are very conflicting signals in the market currently that I am not sure of. T-bills at 3%, dollar drop, oil rising and Gold rising. Let’s not forget that China has just recently acknowledged a 70% increase in its Gold holdings. That should tell you something. With China increasing its gold reserves that means it is going to be buying a lot less US treasuries; China has utterly lost faith in the US dollar as a reserve currency and is moving into the natural alternative of Gold. China is planning for growth in its economy and an increase in the standard of living of its billion-odd citizens. That is where and how deflation ends, as the Federal Reserve and US Treasury prints trillions and trillions of dollars.
Anybody who says we are not in the start of an inflationary period has not bought groceries, doesn’t have insurance on autos, house and health, and doesn’t have utilities, electric, phone, cable/dish. The poor are getting poorer and the middle class is shrinking daily. Deflation is only what is happening in the brains of Washington and insiders in the banks and other large corporations. Insiders continue to drain cash (via bonuses and wow, the options scam) from the corporations so they have to go to the banks and bond issues to replace needed operating cash. This is the most outrageous form of embezzlement and greed. All those worried about Central Banks selling their gold in the future have overlooked one obvious fact: fiat currencies have proved themselves hollow once again. In the coming currency wars between nations those countries holding the most Gold will find their currencies accepted with a greater degree of faith. In effect, these countries will never sell their Gold… But, they WILL sell their paper.
My Gold analysis right now is that I can’t see any scenario where Gold will go back down under $775 an ounce, and if we get a good short squeeze going, the upside could blow the doors off as we head straight up to 1,200+. Considering there are lots of scenarios right now where we see Dow 6000 and S&P heading back to 600, I’m going to stick with Gold as a 15% part of my portfolio.
In my opinion large institutional investors and hedge funds will be looking to reestablish their positions in Gold stocks including the junior miners. A few of my favorites in this area are (AUY), (GSS), (KGC), (ABX) and if you want to play an ETF the (GDX) The Market Guardian Gold Article.
Be sure to put in your favorite Gold ticker and see how the trends look.
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