To get the facts on gold correctly, gold is not a bubble. While there are central banks to solve the problems of rising uncertainty, fears have shorted gold in these few days. But as the debt continues rising daily, without remedy, we haven’t seen real inflation as of yet! Rates remain low and easy money is available to banks. Credit issues will make it harder for banks to lend thus, making higher inflation likely.
As investors fear torpedoed equities and rallied for gold in fear of recession, two days ago the pendulum swung against gold . Unfortunately, the rise caught the attention of Wall Street and the regulatory group. The short dip will help gold bugs to buy before the yellow meatal takes off again and goes parabolic. With the economy continuing to struggle, and everyone counting on a gift from Bernanke, with unemployment rising, housing down, banks not lending, and the debate to raise taxes continuing behind the backdrop of global political turmoil, both US and the Erozone are moving toward a shortfall.
If the ECB does not lend, the Eruzone will crumble. If they do, what will that do the ECB? The US is in the same pickle, only it can print its way out momentarily, but the debt remains and inflation prevails. Even with low interest rate the growing debt outpaces any money supply. If the Feds print more money to help the debt situation, in layman terms, more money more debt, until debt will be monetized. Such is the in present credit deflation as seen in the financial and real estate assets. The result that will create inflation and later worse, hyperinflation. By the time Fed reacts, the IOU’s will triple. These are the real issues that will support gold.
The merging market demand and weak dollar will continue its boon for commodities because there is too much upside built into future projects in the devastatingly low economy. A huge bullish counter move in gold on Tuesday could pick up. Meantime, the dips are good to buy. The Fed has two choices, print or raise the rates. If Bernanke doesn’t do a thing, stocks as seen will go further south and then the Fed will have to stave off panic to print. What will that do to Wall Street and gold? Gold will rise again.
To think that gold has corrected because investors are taking on more risk is an illusion. Even the biggest gold bulls have advised folks to take some profit recently after gold rose some 25% in a couple months. Gold is a hedge against tail risks and a financial meltdown. For those in question, the real bubble is in fiat financial engineering. “The rising uncertainty about global growth and European debt are pushing investors to search for more secure stores of value. While people panic, gold will continue to rise on the falling dollar”, says Regal Asset Team of Analyst. Each passing day the dollar is debased. Investing in gold is the safest way whereby no one can touch you or your wealth.