Friday, May 17, 2013

WSJ: Five Reasons Why the Gold Bulls Are Right

WSJ gets it. I have been making a number of these points and others in the EPJ Daily Alert. Here's WSJ:

1)  Sentiment is improving in peripheral Europe: The recent collapse in gold prices was precipitated by news that Cyprus may sell its gold holdings to assist in the recovery from its banking crisis. Panic spread over fears that the rest of peripheral Europe would sell bullion reserves but those fears are receding.

2) Equities could tumble: Record strength in stock indices such as the Dow Jones Industrial Average is not supported by macroeconomic fundamentals. Sooner or later, stock markets will correct and gold will be back in vogue. [At the ALERT I am reporting on slowing money growth, which could result in an eventual slowing economy and stock market crash-RW]

3) India’s monsoon season won’t last forever: Inhabitants of the world’s second most populous country are also the biggest buyers of gold jewellery. The problem is, a large part of that is purchased to celebrate weddings, and nobody wants to get married in the rain. That suggests there is a seasonal element to gold’s current weakness, so in the Fall demand will be back again.

3) The important Indian demand for gold isn’t all about jewellery: In some jurisdictions, notably India, gold counts as part of a bank’s liquidity ratio. If the asset base of banks in those jurisdictions grows, so too will demand for gold.

5) Retail investors are still buying: Despite what financial experts say – that the world’s economy is in recovery so gold is no longer needed as a hedge -  retail investors are treating gold’s current travails as a buying opportunity. On the back of April’s 20% drop in gold prices, reported that sales of gold bullion coins rose 40%.

I am also pointing out at the ALERT that there appears to be a shrinking desire to hold cash balances, which ultimately will lead to accelerating price inflation.

1 comment:

  1. After the incessant monetary debasement by central banks all over the world and events such as the Cyprus bail-in, you'd think this would clue people in to moving their wealth out of fiat currencies and out of the banking system. Nope.

    I don't know how obvious it has to get before people realize they're being ripped off. The signs are flashing brightly, yet the zombies would rather watch Dancing with the Stars. Go figure.

    I hate to write this, but people this intellectually lazy almost deserve to become impoverished.