Four Reasons for an Immediate Rise in Gold

Gold hit $884 as this post was written early on Monday 29th December, the day that Indian astrologers have down for a stock market crash. That would seem unlikely given thin holiday trading. But a further rise in the gold price, even if short-term, looks probable for four reasons:

1. Geopolitics: Israel has attacked Gaza with considerable loss of life, a reminder of the chronic political problems of the Middle East with Iran and Pakistan other possible flash points. Arabs are big investors in gold and respond to disruptions in their own backyard.
2. Physical delivery requests are mounting at the Comex futures exchange which could well result in an immediate shortage of gold at the year-end. The futures market looks about to breakdown, giving control of the gold price back to the physical market where available stocks are low.
3. Gold preserved value through the storm of 2008, and 2009 looks no better, while investors are increasingly concerned about the bubble in the bond market. In the investment cycle the next step is a bond crash and a flight to precious metals.
4. The dollar rally looks to have already broken down, so look for a swift reversal to dollar devaluation and gold appreciation. That would also boost the oil price, usually a positive for gold, and also linked to geopolitical instability in the Middle East.

Comments

[CLH]

While gold may not drop for another year, it is doubtful if gold will go up without inflation. Your other reasons are of little importance for gold rising.

2008 Dec 29 07:43 AM

[Kelly Lieberman]

It is interesting to read posters prior comments to see their past history... Yes, gold is headed up, and for the reasons listed above.
If you have been paying attention, by now you have made a fortune. If not, start reading and doing some research.

2008 Dec 29 09:15 AM

[sdavid0419]

If our government continues to print money (and with the Obama administration the only question is how much) deflation will have to give way to inflation sooner rather than later. Oil producers have already made it clear that they will control supply to get a price that yields them a profit. The fact that there are very few stable currencies around the world will drive gold up. For me, once Moody's lost my respect I have no desire to invest in a market that favors CEO pay over stockholders equity. You can only put so much into insured CD's. There is a kiosk in every mall with people buying gold at less than half its value. The banks of the Sacramento river have more panners now than during the gold rush. People buying gold are waiting longer and longer for delivery. My only fear now is that this GLD fund turns out to be another scam and all the gold I think I own isn't really there. Thats not to far fetched considering all of the other things we thought sacrid are crumbling.

2008 Dec 29 09:56 AM

[De Graaf]

I couldn't agree more. Nothing to add to your four points except for the deflation aspect of the equation.
If deflation gets grip on the world economies, than we have a different situation for gold. History show gold goes up in deflation, but that was when were still on a gold standard. This era is somewhat different.

Basically, when monetary deflation rapids, gold could be going down, as people tend to flee to the fiat dollar currency. But my senses are with you for inflation and a great appreciation of gold and silver assets.

brgds.

2008 Dec 29 11:16 AM

[petetoth]

When the markets dive, so do Gold and the Euro. When that uncoupling takes place, gold has a chance to do big things, until then...

2008 Dec 29 11:37 AM

[petetoth]

If you must own gold, own the physical metal.

At least it's shiny, pretty, and heavy. That's your ROI.

...And of course you can play "pirate" with the kids using real doubloons, just remember where you buried that treasure chest...


On Dec 29 09:56 AM sdavid0419 wrote:

> My only fear now is that this GLD
> fund turns out to be another scam and all the gold I think I own
> isn't really there. Thats not to far fetched considering all of
> the other things we thought sacrid are crumbling.

2008 Dec 29 11:42 AM

[NOWHEREMAN]

The only potential downside to Gold is the Gold ETF, GLD.

Another round of forced selling by Hedge Funds would take out this last Bastion of strength. GLD has not been assaulted like all of the other ETFs and, as such, has a Big Bulls eye on it. If forced selling occurs, GLD might be forced into selling Tons of Gold into the open markets because a few of the counterparties have died, like Bear Sterns.

On the other side of that Gold Coin is the Current Isreali offensive. Oil jumped and retreated. But if Israel is really in it to prove a point, that the Lebanon Fiasco was a fluke, they will try to remove Hamas from Gaza. Hamas will seek aid from Iran/Syria and both Gold and Oil will rise dramatically.

So on the one side you have a Potential decline but on the other and very real side, you have this conflict.

From my perspective, the longer the conflict, the greater the odds that Gold Rises and the Hedge Funds buy more.

IMO

2008 Dec 29 12:20 PM

[De Graaf]

Aitvaras has a point with regard to the ETF's.
If we see another wave of asset deflation, like we had in 2008 and especially since August, then we are likely to see the ETF's dropping as they are representing paper gold in dollar denomination.

That is one of the reasons, gold could go down, if the FED's inflationary policy does not result in proper countering of the deflationary forces in the private sector.

But, having said that; I tend to feel we have an true secular bull for gold and silver. Inflation will rule in the end. Big time.

brgds,

2008 Dec 29 12:56 PM

[User 30121]

Another SUPERB article!

Typical posts that elude to the writers' expertise-- or lack thereof--are in abundance...then there are the refreshing posts that have legitmate concerns. Then you we are subjected to CLH. Amen!

CLH: you are to be pitied. You have been a poster for a long time, and have had the benefit of sage articles and posters. No matter. You can't see the forrest because those tall things (called trees) are blocking your view. Your incessant ripping of any articles giving gold its due has long been dismssed by even the novice reader--since you know not of what you speak!

Presuming you have a family, or at least relatives, give them an opportunity to prosper in the future...enlighten them about owning gold. Call it community service!

De Graaf: Your premise is real, however, IMHO, I do no believe for an INSTANT that the Harry Reid, Nancy Peosi, Barney Frank, et al, and the Barack Obama light show will ALLOW deflation to exist. For you see, in an inflation-oriened world, they can do what the have done so EXPERTLY the past two years....STEAL YOU BLIND!

2008 Dec 29 01:00 PM

[EricH]

Nice article.

The current fake and tyranical monetary and finacial system is breaking down. Eventually (at the very last possible second) the blind and noisy multitudes are going to see this, and when they do there will be the biggest PANIC and flight to precious metals than known in recorded history. At that point in time the all the visionary precious metal holders will be among the few (along with holders of real property) that actually possess earned and stored value representing real wealth.

However, I believe you should hang on to enough junk dollars to carry you through the short squeeze (interim deflationary period). In my estimation that transition will likely occure some time within the next 12-24 months.

Hang in there and make sure you can carry yourself through the squeeze period without needing to trade your PM's until you ready on your terms.

2008 Dec 30 12:13 AM

[Trace Mayer]

It probably is a scam and probably will not be there. Read the prospectus. Of course, it does not matter until it is the only thing that matters.

seekingalpha.com/artic...


On Dec 29 09:56 AM sdavid0419 wrote:

>My only fear now is that this GLD
> fund turns out to be another scam and all the gold I think I own
> isn't really there.

2008 Dec 30 12:58 AM

[Trace Mayer]

Precisely. The world is returning to sanity and reality which is a commodity backed currency. The FRN$ system does not so much collapse as evaporate but, as you tangentially point out by referencing the interim deflation, the FRN$ will be the last layer to evaporate. I think we may have longer than 12-24 months but things are happening a lot faster than I ever expected.

The world has been in an inflationary credit expansion for decades and perhaps centuries. However, the zenith was reached and now the equal and opposite reaction has started which is a deflationary credit contraction.

www.runtogold.com/2008.../

On Dec 30 12:13 AM EricH wrote:

> The current fake and tyranical monetary and finacial system is breaking
> down. Eventually (at the very last possible second) the blind and
> noisy multitudes are going to see this, and when they do there will
> be the biggest PANIC and flight to precious metals than known in
> recorded history.

2008 Dec 30 01:03 AM

[mauijeff]

I know what you are talking about, can we really trust wall street to honestly manage a gold trust? You should look at GTU and CEF. Both are on the AMEX. and are Canadian. They hold their gold unencumbered for which you pay a premium, but I believe it's worth it.


On Dec 29 09:56 AM sdavid0419 wrote:

> If our government continues to print money (and with the Obama administration
> the only question is how much) deflation will have to give way to
> inflation sooner rather than later. Oil producers have already made
> it clear that they will control supply to get a price that yields
> them a profit. The fact that there are very few stable currencies
> around the world will drive gold up. For me, once Moody's lost my
> respect I have no desire to invest in a market that favors CEO pay
> over stockholders equity. You can only put so much into insured
> CD's. There is a kiosk in every mall with people buying gold at less
> than half its value. The banks of the Sacramento river have more
> panners now than during the gold rush. People buying gold are waiting
> longer and longer for delivery. My only fear now is that this GLD
> fund turns out to be another scam and all the gold I think I own
> isn't really there. Thats not to far fetched considering all of
> the other things we thought sacrid are crumbling.

2008 Dec 30 03:00 AM

[User 327941]

I had just made 5 reasons of my own before I had read your article. Here they are: war, a lot of new available money at the start of the new year, very few safe investments to invest in for profit or asset protection, massive govt spending, and other govts need to diversify into gold and not hold as many dollars.

2008 Dec 30 08:57 AM

[nmelendez]

You forgot the most important reason:

The Fed will let gold rise to 1200/1500, just to quash the conspiracy theory's

2008 Dec 30 08:01 PM

[andy b]

And then what? Then enters the global cashless society, where all money is electronic and you can't buy and sell unless you are part of the system. Then you won't even be allowed to use gold or precious metals as money or barter, only the global electronic debit system. Drats, foiled again!

What's that, you say? You don't want the government controlling every facet and detail of your private life? You refuse to get that microchip implanted under your skin? Too bad, you sold your soul a long time ago to the powers-that-be. You'll just be erased from the system's computers. No more buying or selling for you. Off with your head!

Plan B? There is no plan B.

"The current fake and tyranical monetary and finacial system is breaking
down. Eventually (at the very last possible second) the blind and
noisy multitudes are going to see this, and when they do there will
be the biggest PANIC and flight to precious metals than known in
recorded history."

2008 Dec 31 11:58 PM