Monday, June 21, 2010

Reiterating - Gold is going higher

I have taken great interest in the gold debate. Here is what I have found...

There are two major laws to investing in gold.

(1) Gold tracks neither inflation or deflation as a rule, instead gold tracks financial instability

In periods of financial instability, there is a rush to safety to buy treasury bonds and the like. Investors also become skeptical of paper currency. That is a strong bullish case for gold.

(2) Gold consistently increases when short term interest rates are at nominal zero

When the Fed is pumping money into the system to fight whatever financial ill is in the system, this is also a bullish scenario for gold. Right now, the Fed is trying to unemployment and financial instability. Both drivers warrant an extended period of low interest rates. So when will the Fed raise interest rates?

(1 + 2) The Fed historically has only raised rates six months after unemployment starts to fall from peak levels

Based on the current reports regarding the dwindling stimulus and the temporary census jobs boost, unemployment should decline from current levels for the rest of 2010 and early 2011. Thus with the instability in Europe, and these structural problems in the US, the Fed will keep interest rates low as a safe strategy. This is an "all clear" bullish sign for gold for the rest of the year.

1 comment:


Buy gold their not making anymore of it.