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Gold Strong Bull Market Fundamentals

Commodities / Gold & Silver Dec 16, 2008 - 07:49 AM GMT

By: Mark_OByrne

Commodities Gold rose again yesterday and the dollar fell sharply in anticipation of the Federal Reserve further slashing interest rates to record lows of 0.5% today.


In a desperate bid to prevent a recession deepening, the Federal Reserve is prepared to slash interest rates to an all-time low near 0% today. With ZIRP (zero interest rate) policies, the US and global economy and monetary system is entering unchartered territory which is leading to continuing safe haven demand for gold. 2009 looks set to be another very uncertain and turbulent year and the largest financial crisis since the 1930’s continues to impact the global economy.

The monstrous credit and debt bubble in the United States (and the UK and Ireland), through years of cheap money policies by the Federal Reserve and irresponsible lending policies by banks, has created a bloated economy with an array of horrible and massive dislocations and imbalances that make a sustained recovery extremely difficult. The notion that more of the same failed policies will cure the imbalances is wrong headed. Debt driven consumerism got us into this mess and will not get us out. Rather prudent saving, investment and allocation of capital to export and employment creating enterprises will be needed in order to get the American and western economies back on their feet again.

Savers internationally continue to be penalized as real negative interest rates deepen. Inflation has fallen very recently but not nearly as sharply as interest rates. This is leading to a flight to the safety of gold as seen in rising premiums, delays in delivery and bullion coin and bar rationing, shortages and unavailability. Gold has less or no counter party risk and in an era where return of capital is more important than return of capital, this is gold’s crucial quality.

The great argument against gold was that it did not yield anything. Increasingly, government and corporate bonds and deposit accounts yield next to nothing and savers also have the additional headache of counter party risk.

The gold bull market will likely only end when interest rates in the US and internationally rise in the coming years to levels that will induce savers to increase their savings rate and will restore confidence in fiat currencies. This is how the 1970’s bull market ended when Paul Volcker, the ex Federal Reserve Chairman increased interest rates to nearly 20%. As interest rates went up so did the gold price and it was only at the end of the interest rate tightening cycle with rates nearly at 20% that inflation was contained and investors began to sell gold and return to cash deposits and the safety of very high yielding U.S. government bonds.

By Mark O'Byrne, Executive Director

Gold Investments
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Gold and Silver Investments Ltd. have been awarded the MoneyMate and Investor Magazine Financial Analyst of 2006.

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Gold and Silver Investments Limited hope to inform our clientele of important financial and economic developments and thus help our clientele and prospective clientele understand our rapidly changing global economy and the implications for their livelihoods and wealth.
We focus on the medium and long term global macroeconomic trends and how they pertain to the precious metal markets and our clienteles savings, investments and livelihoods. We emphasise prudence, safety and security as they are of paramount importance in the preservation of wealth.

Financial Regulation: Gold & Silver Investments Limited trading as Gold Investments is regulated by the Financial Regulator as a multi-agency intermediary. Our Financial Regulator Reference Number is 39656. Gold Investments is registered in the Companies Registration Office under Company number 377252 . Registered for VAT under number 6397252A . Codes of Conduct are imposed by the Financial Regulator and can be accessed at www.financialregulator.ie or from the Financial Regulator at PO Box 9138, College Green, Dublin 2, Ireland. Property, Commodities and Precious Metals are not regulated by the Financial Regulator

Disclaimer: The information in this document has been obtained from sources, which we believe to be reliable. We cannot guarantee its accuracy or completeness. It does not constitute a solicitation for the purchase or sale of any investment. Any person acting on the information contained in this document does so at their own risk. Recommendations in this document may not be suitable for all investors. Individual circumstances should be considered before a decision to invest is taken. Investors should note the following: The value of investments may fall or rise against investors' interests. Income levels from investments may fluctuate. Changes in exchange rates may have an adverse effect on the value of, or income from, investments denominated in foreign currencies. Past experience is not necessarily a guide to future performance.

All the opinions expressed herein are solely those of Gold & Silver Investments Limited and not those of the Perth Mint. They do not reflect the views of the Perth Mint and the Perth Mint accepts no legal liability or responsibility for any claims made or opinions expressed herein.

Mark O'Byrne Archive

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