I'm not a gold bug. Never have been. However, I'm taking a new look at participating in gold (along with silver and other precious metals). From the indicators I am seeing, there may be another breakout of gold on the horizon. There are plenty of reasons, beginning with the fact that new supply is shrinking while demand is growing due to currency weakness around the globe, growing civil unrest in the Middle East and North Africa, and shriveling confidence in Western financial institutions.
Gold is going to continue to benefit as foreigners look beyond loading up with more dollars (some have a growing concern that the dollar soon will cease to be the currency of standard). China, India, and Russia are interested in significantly increasing their gold reserves. India recently bought several hundred tons from the IMF, and Russia and China are talking about increasing their gold holdings by more than 1,000 tons each. Foreign demand of this magnitude will act as a floor on gold and limit the downside.
Most pressing in gold’s future is the future of the bond market. Retail investors dumped stocks at the lows in 2008 and bought bonds. For a while, they were rewarded, but there is evidence pointing to the beginning of a new secular bear market in bonds. The guy on the street is going to get slammed again; and as bonds pull back, he will once more jump into the strongest market at the time. That may well be gold. Once the crowd jumps out of bonds and into gold, the velocity/bubble stage will begin.
Remember, gold is real money.
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