The Contrary Gold Buyer

Have you noticed that gold hit a 7-month low price of $1,585 last week? Yes, it is true. Despite uncertainty in Italian elections and every central bank on the planet looking to weaken their currency for short term economic growth, gold has dramatically fallen from its September 2011 high of $1,920. Gold bugs where have you gone?

Before I hit the pillow last night I did see Shirley Bassey sing "Goldfingahhh" at the Oscars. While a little bit older, I thought she was strong, bold, and pulled off the tribute to the famous Bond song beautifully. Is it possible Shirley can wake up all those hibernating gold and precious metal bulls? I say yes, if you give gold buyers some time (3 to 6 months) to start building positions again.

I admit that I am not a gold bug, nut, or whatever you call gold zealots. But, I like to buy commodities when they are on sale and out of favor. Today, hedge funds and aggressive traders seem to be having more fun with global currencies than precious metals. That is fine by me. I believe that if big global investors start to believe the jig is up regarding devaluation of major currencies, gold will again start to shine as the best safe haven currency.

With sovereign government debt around the world growing by the day and central bank copy-cat devaluation moves taking place in all major currencies, it seems the long term odds are in favor of higher precious metal prices looking out over the next two/three years. Last week, many Fed policymakers expressed concern about the $85 billion a month of debt purchasing. The U.S. central bank is on track to expand its record $3.08 trillion balance sheet by $1.02 trillion this year. This confusion about Fed policy along with rumors of a major commodity fund in a forced liquidation helped push gold to the recent low level.

So, being somewhat contrarian, I plan to watch and monitor gold, silver, and platinum prices over the next few weeks to see if a bottom price level is forming. Physical gold buying still seems to be happening in China, India, and Russia from recent data. Germany wants its physical gold back from the U.S. Finally, gold miners continue to find it more costly and politically challenging to produce the shiny stuff.

As I take in all the recent news and macro confusion, I am leaning toward putting a toe back into precious metals before too long, thinking all this new volatility complacency will not last long.

Have a great week,

 

Roger N. Steed

February 25, 2013

 

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