Most Popular
1. Dow Max Drawdown Bear Stock Market 2022 - Accumulating Deviations from the Highs - 21st Feb 22
2.Putin Starts WW3 in Ukraine, Will Use Tactical Nuclear Weapons, China Prepares Taiwan Blitzkrieg - 28th Feb 22
3.World War 3 Phase 1 - Putin WINS Ukraine War! - 25th Feb 22
5.Will There Be A 2024 US Presidential Election? - 3rd Mar 22
6.Gold and SIlver, Precious Metals Sector Is at a Terrific Buy Spot - 6th Feb 22
7.Why Putin Wants the WHOLE of Ukraine - World War 3 Untended Consequences - 6th Feb 22
8.Dow Stock Market Expected Max Drawdown 2022 - 19th Feb 22
9.Stock Market Calm In the Eye of the Inflation Storm - 4th Mar 22
10.M = F - Everything is Waving! Stock Market Forward Guidance - 7th Mar 22
Last 7 days
Why APPLE Could CRASH the Stock Market! - 21st May 22
Why Is Crude Oil Ignoring US Inventories? - 21st May 22
Here is Why I’m Still Bullish on Gold Mining Stocks - 21st May 22
US Real Estate Investors – Is There An End In Sight? - 20th May 22
How Technology Affected the Gaming Industry - 20th May 22
How To Set And Achieve Reasonable Goals For Your Company - 20th May 22
How Low Could the Amazon (AMZN) Stock Price Fall? - 19th May 22
Bitten by FANG? Clocked by Cryptos? -- 'Air Pockets' Everywhere - 19th May 22
Northern General Hospital Orthopedics Fractures and and Ankle Clinic Consultations Real Patient Experience - 19th May 22
Cathie Wood Goes All in on Teladoc, ARKK INSANE Noob Investing Strategy! - 17th May 22
This is Anything but Positive for US Housing Market - 17th May 22
What Should We Do If There Is No Fed Monetary Policy Pivot? - 17th May 22
All Possible Ways to Earn Free Litecoin - 17th May 22
How low Could the Amazon Stock Price Fall? - 16th May 22
Cathy Wood ARKK INSANITY There is NO Coming Back! - 16th May 22
NASDAQ 100 Stock Market LOWER LOWS & LOWER HIGH - 16th May 22
Sanctions, trade wars worsen US inflation - 16th May 22
AI Tech Stocks Earnings BloodBath Buying Opportunity - 14th May 22
Futures Contract – Trading Crude Oil With USO - 14th May 22
How to Get Kaspersky Internet Security for 80% Discount! Do not Pay Renewal Price! - 14th May 22
Sagittarius A* Super Massive Black Hole Monster at Centre of Our Galaxy REVEALED! - 14th May 22
UK Public Debt Smoking Inflation Gun - 13th May 22
What Happens When the Stock Market Dip Keeps Dipping? - 13th May 22
Biden Seeks Inflation Scapegoats; Gold Advocate Wins GOP Primary - 13th May 22
Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - 12th May 22
The War on Gold Ensures the Dollar’s Downfall - 12th May 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Calm Before the Storm, Gold Bullion Will Benefit

Commodities / Gold and Silver 2012 Jul 24, 2012 - 04:21 AM GMT

By: Jan_Skoyles


Best Financial Markets Analysis ArticleLate last week when reading the World Gold Council’s Gold Investment Statistic’s commentary, we were reminded of when Doug Casey said ‘“inevitable” is not the same thing as “imminent.”’

As we keep mentioning on these pages the financial situation, which has been snowballing for over 40 years, will continue to do so and in the process those who decided to invest in gold bullion will benefit.

However, since the beginning of the year, action in the gold price has been victim to much criticism as it seems that despite the negative headlines in regard to the state of the world economic situation, gold has not been acting its part.

The WGC’s report addresses some of the key arguments against gold and reminds us that in the long term, gold does what it is supposed to do – hold its value and has zero counter-party risk. But we must be patient and watch as the farce continues to be acted out for us by the central banks, safe in the knowledge that whilst the rush to gold is inevitable, it is by no means imminent.

Deflation paves the way for inflationary policies
As argued by Ronald Stoerferle, in his latest ‘In gold we trust’ report, the risks of deflation in the world economy are, in fact, increasing. Whether we are heading for further inflation or in fact deflation seems to be the multi-million dollar question at present. But policy makers are so paranoid as to the effects of deflation that they are almost predestined to implement further stimulus packages.

Whilst many believe that deflation spells the end of gold’s bull-run, the WGC explains that ‘this simplification does not capture the full depth of the situation…gold is useful to investors in various economic scenarios.’

A study, ‘The impact of inflation and deflation in the case for gold’ finds that whilst deflation may be good for the US dollar, and therefore create negative turbulence for gold, the destructive impact the strong dollar would have on traditional assets was likely to provide a boost for gold, and outweigh the effects from the dollar. The WGC report drives this point home, arguing that we must not be alarmed by the purported low inflation levels as gold will benefit from either scenario.

Currency debasement set to continue
For each stimulus package implemented by policy makers, in fear of deflation and slowing growth, the currency is devalued further.

Despite the rush to currencies outside of the Eurozone, namely the US dollar, British pound and Swiss franc, the WGC calls on these ‘safe-haven currency’ investors to remember that the value of these assets continues to deplete the more the supply and debt of these currencies is increased; thereby creating an attractive prospect for gold.

Gold has particularly lost out to the US dollar in the last half of this year. But, we should remember the challenges which the Federal Reserve must face in the coming months. Bernanke is yet to make a decision on QE3, but most of us believe the outcome of his decision is a given. The upcoming elections are no doubt likely to cause turbulence regardless of the outcome, particularly considering the trillion dollar budget cuts required towards the end of the year (if the US is to remain within the current debt ceiling… which it probably won’t).

In the long term, the WGC expect gold to continue to act as a hedge against currency debasement in the international monetary system.

Imaginary strength for world’s economies
The WGC are also quick to warn us of seemingly strong economies and the increasing pressures upon which they may find themselves. They ask investors to pay particular attention to Germany which will find itself in the eye of the contagion zone of the euro crisis, despite strong industry figures being released recently.

They state that this ‘on-going saga will be painful not just for the peripheral countries but also for the core-economies – particularly Germany…whatever the outcome over the euro area saga, Germany’s liabilities are large and likely to increase as a result of greater burden sharing.’ This increasing pressure mainly weighs on the image of the Bunds as the ‘asset of the last resort’.

Whilst US Treasuries and German Bunds may have provided shelter from the economic storm in recent months, they still both carry liabilities, as do the US dollar, Japanese Yen and Swiss franc which have also benefitted. These are dissimilar to gold, which carries no liability ‘thus a rise in its value can have no detrimental effect on other parties.’

‘…while gold has been negatively impacted by a stronger US dollar this year, it remains an important alternative to investors seeking to preserve capital over the longer time horizon.’

Conclusion leads to gold
The WGC make no reference to recent speculation of the manipulation in the gold market. This can only mean one thing – they do not see it having affected the gold investment landscape in the last quarter and nor do they foresee any future effect. As we argued some weeks ago, manipulation in the gold market does not destroy the fundamental reasons for investing in gold, if anything it should strengthen them.

For many gold investors this must feel like an anxious and long wait. Repeatedly we hear tales of how the global collapse is imminent and gold is going through the roof. Then a central policy maker pulls yet another rabbit out of the bag and we have to remind ourselves that it is just another trick and illusion.

There are only so many rabbits that can be pulled out of the hat, and lots of rabbits creates plenty of chaos which is most certainly inevitable, but most likely not imminent. We remind those who have decided to invest in gold or who are looking at the gold price quizzically, that to own the precious metal is to play the long game. But the long game will one day be won…

Jan Skoyles contributes to the The Real Asset Co research desk. Jan has recently graduated with a First in International Business and Economics. In her final year she developed a keen interest in Austrian economics, Libertarianism and particularly precious metals.  

The Real Asset Co. is a secure and efficient way to invest precious metals. Clients typically use our platform to build a long position and are using gold and silver bullion as a savings mechanism in the face on currency debasement and devaluations. The Real Asset Co. holds a distinctly Austrian world view and was launched to help savers and investors secure and protect their wealth and purchasing power.

© 2012 Copyright Jan Skoyles - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in