Monday, July 12, 2010

Behind Last Week's Mysterious Gold Swap

The Telegraph's Gary White and Rowena Mason have some excellent speculation om what may be behind last weeks news of a multi-billion dollar gold swap. here.

It is most likely somehow tied into with the Euro crisis with someone attempting to raise some cash. That said, these are the kinds of problems that gold faces during a downturn in the economy. The holders of the gold that did the swap may even be believers that gold is going higher, but circumstances forced them to do the swap.

This type of thing is going on at many levels for gold. The person who has been laid off may believe in gold, but need money to pay the rent and thus liquidate.

Bottom line: Gold is the ultimate hedge against inflation. It is not a hedge against a downturn in the economy. Overtime during a downturn there is just too much "forced" selling which causes disillusion among new buyers of gold(non-hardcore) and further selling.

Hang on to your long term gold, a furious inflation is likely to eventually kick in, just don't be surprised be some short term downside action.

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