(Note that the scales have been adjusted to provide a more dramatic image that would be shown if each started at zero).
Posted on 07/27/2011 1:31:27 PM PDT by SeekAndFind
There’s one question that I’ve been seeing over and over for the last several weeks as the price of gold has taken out its all-time highs and continued a nearly uninterrupted ascent: Should I buy gold now?
It’s understandable, especially for people who don’t own precious metals yet. Nobody wants to be the sucker who buys gold at the top, only to watch it crater back to $1200 or below. But here’s some food for thought–
The US dollar is shattering historic lows against currencies like the Swiss franc, Australian dollar, and Singapore dollar. Any currency that isn’t a complete disaster is now being viewed as a safe haven. And the mainstream world is now, finally, waking up to the reality that the United States might actually default.
Never mind that the government has been insolvent for years and the evidence of such has been widely available to anyone willing to look at basic facts. Literally, only in the last week have people finally began to consider the possibility of a US default.
Here in Europe, the situation is arguably even worse. No one is being shy about a default in Greece– it’s discussed openly now by policymakers, and major financial institutions are preparing for a restructuring. And with its public debt more than 120% of GDP, Italy will not be far behind.
Governments no longer have the benefit of operating behind a curtain; their financial imprudence and technical insolvencies are now under the spotlight for all to see… and confidence is fading quickly.
The more people lose confidence in the dollar and euro, the more they look for alternatives. Large institutions and money mangers collectively control trillions of dollars within the financial system. Unallocated capital– funds held as cash and not being actively invested at the moment– must be held somehow, somewhere.
This is the chief reason why so many smaller currencies are surging. Compared to the dollar and euro, the Swiss franc looks incredibly safe, and money managers have a much higher degree of confidence that their Swiss bonds will be repaid than they have in the US or eurozone.
The more capital flows into these smaller currencies, the more they’ll appreciate against the dollar and euro. It’s simple matter of supply and demand– increased demand for the Swiss franc coupled with excess supply of US dollars means a stronger franc in US dollar terms.
Ultimately, this is the primary reason for gold to go higher in the long term.
Large financial institutions are increasingly looking at gold as a safe haven; it’s becoming less of a speculation and more of a store of value… and unlike most of the other available asset classes, precious metals are not politically sensitive.
Even stronger currencies like the Swiss franc have limits to their appreciation. At some point, the Swiss National Bank will impose capital controls to thwart the rise of its currency. Oil and agricultural commodity prices will likely be regulated and speculation outlawed if prices become too high.
But if gold goes to $2,000… $3,000… it may be an embarrassment to central banks, but it won’t become a populist issue. You won’t see any Tunisian merchants setting themselves ablaze because the price of gold is too high… and not too many politicians looking to fix the price.
Even if they do try to regulate gold prices or even make it illegal, you can be sure that the gold trade will continue to thrive in the rest of the world– especially in Asia and the Middle East.
So instead of worrying about buying gold at its all time high, ask yourself another question instead: Over the next few years, do you expect that these broken, bankrupt governments will inspire confidence among institutional investors, or do you think that confidence will continue to erode?
If you’re leaning towards the latter, you can be sure that more money will flow into gold, and that prices will rise.
Yes, there will be price fluctuations. Whenever the US government announces that it has finally reached a debt deal, there will probably be a correction. Given what’s coming in the next several months and years– debt downgrades, more budget battles, government shutdowns, asset seizures, etc., any correction will be a small blip along a long-term rising trend line.
And in case you’re still worried that you’d be a sucker to buy gold at $1600, consider that, if you don’t, in three years you’ll probably feel like a sucker for not buying gold at $1600 when you still had the chance.
...with this clown in office, you can bet his buddy Soros is...
How much to buy?
In what form?
From whom?
Where to keep it?
What is the purpose of having it?
When to sell?
Where will the cash to buy it come from?
A disclaimer...I have gold and silver both as approx 10% of my portfolio. Both bought a long time ago.
I’d say wait for the budget debate to be decided, if Obama “wins” buy all the gold you can afford.
Course not, our massive debt problems will tank our economy and drive gold down to about $700. Buy it then if you must.
If you can’t afford to lose then don’t take the bet!
Mel
Up 150% over the last 5 years, I am not expecting it to go down anytime soon.
Last time it went down was when RR assumed the presidency.
Barring a similar upheaval, I’m not expecting any softening in the gold price.
Gold, schmold!
Two words: pork bellies!
Buy it on August 3.
Better yet, take a short position now.
If the economy tanks one would think gold would go through the roof. But nobody really knows what will happen. It’s all a gamble.
But I wouldn’t be buying dollars.
Here are the 52 week highs and lows for GLD to gold etf.
113.08 - 158.637
7/28/10 - 7/27/11
Quite interesting that the 52 week low was exactly one year ago from the 52 week high set today.
In the past year (as has been the case for decades) the government has spent more than it took in and printed money to make up the difference.
Is there any indication the Democrats or the Republicans are going to do anything different in the coming year?
Basically gold went up $450 this past year. I don’t see anything to stop the rise in gold in the next year.
Even US dollars are a bet, on deflation.
It could be that the “thread the needle” tactic could be what’s on the menu.
Short bouts of deflation, with more money creation after that causes inflation, then another dose of deflation.
Cash and metals, that will play both bets.
(Note that the scales have been adjusted to provide a more dramatic image that would be shown if each started at zero).
Malt and hops (all grain brewing is too tedious)
Wine and Whiskey
Weed and seed
Shells and bullets
You’ve got that right.
Volker was the FED, and Bernank is NO Volker.
In fact, they CAN’T raise interest rates, the cost of paying for the interest will kill the ponzi scheme. They need to keep interests low, like, forever.
The question is, for how long will this go on?
The best answer is that anyone who think they should own some gold should accumulate it gradually, perhaps on a monthly basis.
I’d advise silver first, which is also easier to buy in smaller quantities.
Best options for small buys are eBay and Gainesville Coins (both of which this Freeper has used).
I wonder how many of them magic beans I can get for the family cow?
Course not, our massive debt problems will tank our economy and drive gold down to about $700. Buy it then if you must.
“But I wouldn’t be buying dollars.”
Of course not. Because you’d rather buy at the historic highs and sell into the historic lows.
Still buying more USD. :)
Enough to grow a bean stalk to the national debt ceiling.
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