What Gold Really Means for the Economy/Investors at $1,400

The last time I bought more gold was when gold traded at about $1,320 an ounce. I’ve been waiting ever since for another buying opportunity and it just hasn’t developed. But investment goes up or down in a straight line, so I will eventually have my opportunity again.

If we look at the long-term bull market in gold, 2010 has been particularly strong for the metal. Many gold stocks are up over 100% this year. Gold producers have never found it easier to raise money.

This got me thinking as to what the strong bull market in gold really means for investors and the economy. Here are my conclusions:

For the economy, one word: Inflation. The government’s easy money policy, the Fed doing quantitative easing again, interest rates near zero in the U.S.: all of this is very inflationary. If the real estate market weren’t still in the dumps, we would have outright inflation right now.

Bill Gross, the head of giant PIMCO, the world’s biggest bond fund, said last week that the U.S. will not likely be able to raise interest rates for years because of the fragile economy. I disagree with Gross, because I believe that the U.S. will need to raise interest rates sooner rather than later to support the weakening Greenback.

But supposing Gross is right and I’m wrong, the longer interest rates stay at zero, the more inflation we will get (which is bullish for gold). If I’m right and Gross is wrong, and interest rates do rise, gold will rally, because interest rates will only rise to support a devaluing U.S. dollar. We all know that gold rises as the greenback devalues.

As for investors, they are obviously flocking to buy gold. Why? Because they are not only concerned about inflation, but also worried about the future value of the U.S. dollar. Sure, Greece was the first country to face a financial crisis, and then came Ireland. Looks like Portugal, Spain and Italy are next. But really, how long before it’s the turn of the U.S.? The size and valuation of the gold market are relatively small when compared to the stock market. The more investors there are jumping on the gold bandwagon, the faster and sharper the price of bullion will rise.

When gold was trading at $300.00 an ounce and I predicted it was going to $2,000 to $3,000 an ounce, I literally got laughed at. With gold trading at about $1,400 an ounce, I’m still predicting $2,000 to $3,000 an ounce for gold…and people don’t find it funny anymore.

Leave a Reply

Your email address will not be published. Required fields are marked *