Posted on 02 December 2013 with 11 comments from readers
This has been the first down year for gold in 13 years. Gold bugs are looking tired, drawn and poorer. What’s gone wrong for the precious metal?
If you take the view from Mount Olympus then the gold price has suffered from a switch by global investors into the very old stock market rally and a big hike in gold taxes in India, the biggest market for physical gold. At the same time China has more than doubled its consumption of gold this year and will easily overtake India.
Gold has become oversold. Sure it is always possible for the market to shift further to the downside before it bottoms out. But it won’t stay down for long. Watch for the proverbial string pulling on a brick to fly back in your face. What is doing the pulling?
It’s all that global money printing. Gold’s problems are a temporary hiatus. There is nothing temporary about the problems of the global monetary system.
Yes the Fed might try to wind down money printing soon. Just as happened this summer it will have to back off pretty darn quickly when financial markets tank. Money printing is all that keeps the world economy afloat, albeit with very low or no growth.
Now if they insist on pulling on this string then the golden brick will eventually fly and gold prices hit the roof. It’s not unlike the circumstances of the 27 per cent leap in gold prices in two weeks that occured in 1999, according to some traders familiar with that time.
The Chinese and other global central banks that have been buying gold at low prices this year are the ones who are getting this right, not the late comers to the stock market party. Indians may be paying 10 per cent tax on their domestic gold purchases but they know how gold protected its holders from the devaluation of the rupee this year.
By accummulating huge gold reserves the Chinese are ensuring that gold resumes its role as the centre of the global monetary system when the fiat money system finally collapses. Trouble in the global bond markets as Grandma Yellen tries to wriggle out of QE will be the first tremors in this coming drama.
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