Deficits, Dollar, Energy, Federal Reserve, Live and Learn, Taxes, Treasury, Trust

Gold Bullion Touches Record High

Meet my new financial planner, Martin. He's a commodity trader.

Meet my new financial planner, Martin. He's a commodity trader.

Gold bullion futures touched a record high $1,045 in yesterday’s trading session in New York. If you believe in stock indexes breaking through resistance points, this may be just that for bullion. (1)

While gold is a hedge against inflation fears, U.S. consumer prices will likely fall this year, with some estimates coming in at a 0.5% drop. Any decline would be the first in five decades. (1) Nevertheless, massive deficit spending, the Federal Reserve keeping interest rates near zero and major increases in the money supply have investors worried, and why shouldn’t they be? The 1960’s saw debt financing of Vietnam, the moon mission and the Great Society; a recipe for major stagflation in the 1970’s. The 1990’s and 2000’s have produced huge war financing and U.S. presence abroad, social engineering deficit spending, bailouts and an unprecedented increase in the money supply. Bullion is headed for a ninth straight annual gain, after increasing 18 percent this year. (1)

Before you buy the jobless recovery pitch from our financial leaders, think about buying bullion instead.

In additional news, oil-exporting countries and big energy consumers such as China, Russia, Japan and France, are having a pow-wow to discuss the end of dollar-denominated crude oil. Translation: they don’t want to buy oil in a highly, or hyper, inflated currency; instead hoping for oil transactions denominated in a basket of currencies. This is an obvious hedge against U.S. monetary and fiscal policy, the same fears investors have when buying gold.

Yes, gold markets can experience speculative manias like any other. But gold is more of a reactive marketplace, countering punches from monetary policy (which fund fiscal policy). Plus, it’s a commodity, unlike the vacant mini-mansions still sitting from the housing/money bubble.

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(1) Gold at Record Shows Investors Split With Banks Over Inflation – 2009, Bloomberg.com, retrieved October 6, 2009,
http://www.bloomberg.com/apps/news?pid=20601087&sid=aXYAcH3JiSo0

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4 thoughts on “Gold Bullion Touches Record High

  1. Good post and I totally agree with your points. And I believe we are in for gold going much higher.

    A thought though did occur to me and I’m curious to bounce it off you and see what you think.

    It looked as if what launched gold this week was the news from the UN about the dollar being replaced as the reserve currency with the supposed leaked news about the Arab States in talks with France, China, and Russia to trade oil in some other currency than the dollar.

    The thought occurred to me that it could be a warning from the UN and the listed countries to America on Iran. Sort of a move to use their “financial weapons” or flex them anyway to tell America to stay away or put pressure on Israel.

    Thanks. Appreciate any thoughts you might have.

    Like

    • Thanks for your comment.

      I would agree with your market analysis for sure. Gold launched after the news of oil-exporting countries and major oil-consuming countries sharing their discontent to continue trading oil in dollars. China and Russia have been outspoken for some time (and probably others) about moving away from the dollar as the world reserve currency. However, the UN putting their rubber stamp on the idea was a first for a multinational entity.

      I wouldn’t go as far to say that this week’s news-wire was the “tipping point” for gold, but it’s been very easy to be down on the dollar, for some time. Traders reacted to this news, but those that have been paying attention understand that the fiscal outlook for the U.S. looks rather bleak, and monetary policy has been unsound. The dollar is supposed to be the peg for other currencies; the U.S. economy the stability and strength to guarantee debt obligations. As countries continue to publicly react to the reality of U.S. fiscal and monetary policy, so will investors by buying bullion.

      As far as geopolitics are concerned, I am certainly no expert. Your thought is valid, and could very well be true. It doesn’t appear that things will end well between Israel and Iran. When it comes to violence, they rarely do in that part of the world. America does not want to see the dollar replaced as the reserve currency, and thus dollars dumped onto the markets out of foreign central banks. That fear is great leverage for the UN, anytime they want to apply pressure on the United States.

      Like

  2. Thanks for the input, Ryan. I really appreciate it. The geo-political question has been itching me like crazy, if you know what I mean. The whole things smells to me and really speaks to how the other nations view the US politically and economically right now. The ground is getting less solid by the day it seems.

    You continue to be a superb source of market insights. Thanks!

    Like

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