Gold rose $3 yesterday...climbing back towards $900. Many gold investors are worried that the end of the Fed's rate cuts also means the end of gold's bull market - at least for the near term.
We don't think so.
Rate cuts, more loans, rebate checks, money supply increases - it all adds up to higher rates of inflation. And there's no Paul Volcker on the horizon to stop it.
Here's the way our friends at Doug Casey's 'Big Gold' report see it:
"So what happened? Is the bull market over, or is it intact?
"We are confident the bull market in gold is not over. There is simply too much pressure for higher inflation and a weaker dollar for gold not to rise. A dreadful day (or week or month, or even a season) for gold doesn't drain out the bad stuff that's been simmering in the economic cauldron. The Federal Reserve hasn't stopped printing money (in fact, it's picked up the pace); the U.S. government hasn't balanced its budget (in fact, the 'stimulus package' is making the deficit worse); and the dollar's foreign exchange value hasn't fallen nearly enough to cure the U.S. economy's enormous trade deficit. In short, we don't share the sentiment that all is better in the U.S. economic and financial systems.
"It's our opinion that gold's downturn and the corresponding easing of worries about the financial system are temporary. How long 'temporary' will continue is unknown, but events always trump psychology at some point. First we will see investors return to gold - and then we'll see newcomers fleeing toward it."
Bill Bonner
The Daily Reckoning Australia
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About the Author
Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Comment by Michael on 14 May 2008:
Whilst there is war and so much uncertainty throughout the world, in so many areas... how can you doubt the future value of gold?
Comment by Spartacuss on 10 November 2008:
Stimulus gimmeus. No where is there a glimmer of hope for restoration of basic capital formation. It is all out for printing press euphoria. Gold, don't worry, be happy. It ia an au priori.
Comment by SUe Larsen on 3 June 2009:
Call me stupid but after becoming quite excited that my gold price was finally back to the price I bought it at in March, I was faced with the sledgehammer realisation that with the strengthening of the Aus dollar/weaker US dollar, my investment is now worth significantly less than when I bought it despite the price being up. With the USD outlook looking more pessimistic and its forecasts for further decline, this will make my situation worse. How do Australian investors like me win in this situation with gold prices increasing and USD declining..is it all a futile exercise or have I missed something here?