$825bn stimulus plan signals gold take-off
Posted on 29 January 2009 with no comments from readers
Last night the US passed its much anticipated $825 billion Obama stimulus package, representing another huge monetary expansion. Countries all around the world have been at it, and the volume of money in circulation is increasing at a record level.
Meantime, gold prices have been perky and past $900 earlier this week. Now gold has fallen back a little. The gold chart has completed an almost perfect inverse head-and-shoulders pattern which should mark the reversal of the falling trend that started at $1,050 an ounce last March.
Gold technicals
Aside from the technicals of the gold chart, let us also get back to fundamentals: the supply of gold and silver is pretty much fixed. Money supply is undergoing huge and unprecedented expansion.
At present governments are printing money like fury and little is happening to their economies because banks, companies and individuals are hoarding cash. But eventually pulling on this string will work, and money will flood into the economy in an uncontrollable way.
It is at this point that gold prices will go ballistic. That should not be more than nine months to a year away based on past precedent.
However, before that golden age occurs there will be increasing speculation about the future of the gold (and silver) price. More and more investors will read articles like this one and be impressed by the argument – which is far sounder than trying to come up with a new bull market for equities, bonds or real estate.
Bond crash
Sometime soon the bond markets of the world are also going to weaken much further, and that will give precious metals another reason to rise in value as an alternative safe haven class.
For investors in precious metals then it is just a matter of holding on and taking advantage of price dips to stock up with bullion and shares, although it is surely arguable that the best buying opportunities are behind us now as the price trend is about to head back up.
Trying to time the market exactly or using borrowed money is not a clever approach in volatile markets, but a diversified precious metals portfolio is going to be a winner over the next two years.
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no Comments posted by readers:
You have two relevant comments, but one is more legitimate than the other. Your point that relates the current rapid increase in money supply to high inflation in two years or so is not very legitimate because inflationary expectations are anchored at zero now. It takes a long time to change expected inflation and the Fed is aware of increase in money supply. Therefore, it is making plans to combat it. Your legitimate point is regarding the safe haven status of the short-run US Treasury securities. Yes, this status is coming under more strains, and if the risk-free T bill bubble bursts, people will move to the more tested and more enduring safe haven status of gold.
Some stats to further support your claims:
1. The total amount of fiat currency in the world is approx. $600 trillion in US dollar equivalents.
2. As you pointed out, every country in the world is printing money as fast as they can for the year 2009
3. The total amount of gold, expressed in US dollar equivalents, is approx. $800 billion.
So that means gold constitutes far less than 1% of total fiat currency now; by next year, it may be approaching half of that, since gold production will not increase much within the next 12 months.
Well silver seems to be waking up…
Land, gold, silver. That’s it. That is all there ever was. It cannot be inflated. It is what it is. Honest, everlasting land, gold, silver…and those things that come from it.
Bottom line: own land, gold, and silver. (oil comes from the land and sea, so the UAE will outlast the financiers, in my opinion).
Managing land, gold, and silver…now that is another issue. My dad did it well. Pity the world that has males,not men; money changers, not wealth makers. Poor little boys.