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It’s Been a Wild Month for Gold. Is Now a Good Time to Purchase Gold?

May 24th, 2011 No comments

After a steady April where the price of gold rose from $1,420 an ounce to just under $1,540, May has been a roller coaster with a couple of ‘big dips’ to under $1,500.

Periods of volatility are normal in the life of a commodity and, indeed, any investment. In the past 18 months, the price of gold has encountered some wild months: February, June, October in 2010 and March this year.

Nobody can predict future prices with absolute certainty. However, it’s clear a massive factor in the rise of gold is the American economy–specifically its debt levels and the decline of the dollar.

Unless the Federal Reserve dramatically changes course, which seems unlikely, the United States has a major problem coming up: in ‘layman’s terms’ the U.S. has ‘reached its credit limit.’

The numbers are chilling. In 2005, America’s debt ceiling was $7.8 trillion; debt may increase to $18.8 trillion by 2014 – more than 100% of GDP. So the only way the U.S. can fund this debt is by printing money. This creates massive inflationary pressure. Gold is a proven hedge against inflation: demand for gold will likely increase and this will likely push the price up for at least the next several months.

So, while the gold price has experienced some turbulence this month, we believe it’s still a good time to purchase gold for a portion of your investment portfolio. Especially when the price of gold dips.

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Is it Time to Buy Gold?

May 5th, 2011 No comments

In just two years, the price of gold has almost doubled. Is the price going to decline or will it increase? Is now a good time to buy gold even though the price continues to increase? While nobody can predict future prices with 100% accuracy, recent events indicate the rise will continue.

America’s economy remains the world’s largest even though the economy has experienced some turbulence. The Federal Reserve, which controls the money supply in the United States, has a massive impact on the global economy. Perhaps you’ve heard of the phrase “quantitative easing” which is essentially code for “printing money.” It’s the tactic the Federal Reserve is using to stimulate America’s economy.

We could debate the wisdom, or otherwise, of this tactic but there’s no arguing its effect. The dollar is worth less against other currencies and the weakening dollar means higher gold prices. So, for investors interested in buying gold, paying close attention to the Federal Reserve is vital.

  • Federal Reserve Chairman Ben Bernanke held a press conference on April 27. He said that quantitative easing will continue. During the press conference, the dollar fell to 1.47 against the euro and $1.66 against the pound. Gold rose 1.4%.
  • Kathy Lien, director of currency research at Global Forex Trading told CNN Money, “The Fed has made it crystal clear that it is not going to do anything to stop the dollar from falling.”
  • Investors are clearly worried that quantitative easing will lead to inflation. Their “buy gold” tactic is a hedge against inflation. Inflation is starting to rise in the United Kingdom: their consumer price index was 4% in March.
  • Central banks around the world are buying gold bullion. India, China, Qatar, and Russia are among the countries investing in gold. These countries will continue to buy gold as they follow a strategy of diversifying their investment portfolio—and leaving the weakening dollar.
  • A country like Qatar, which receives its payment for oil in dollars, is quickly turning around and buying gold. From early 2008, the Qatari central bank has bought at least a ton of gold every month. Other countries want to buy gold: Mauritius, Sri Lanka, Kazakhstan, Venezuela, and the Philippines are enjoying the “buy gold” party. China will likely increase its gold reserves to 6,000 tons in the next five years and may spend $1 trillion on gold bullion.
  • Robert McEwen, CEO of gold producer U.S. Gold Corporation, stated that gold may reach $2,000 an ounce this year.
  • The last major gold rally ended in 1980 when the Federal Reserve increased interest rates to 20%. The current Federal Reserve Chairman has indicated he’s not likely to increase interest rates—even from the current historically low levels.
  • Investor Warren Buffet recently revealed he believes the dollar will decline significantly.
  • Demand for gold remains high while the supply remains relatively low due to the difficulty of finding and mining significant quantities.

Profit taking will continue in gold and this may create daily and weekly turbulence but the factors above have convinced many investors, and national governments, to buy gold.

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