Why the Sudden Jump in Gold Bullion?

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Anonymous reports place gold bullion at a New York phone booth three days ago, hurriedly changing into an excessively tight red and blue lycra outfit. Something about a cape too.

Sometime between then and now, the headline gold bullion raised one fist to the air… and took off.

It currently trades a bit over US$960 per ounce. In its scorn for gravity, gold is dragging silver along for the ride. Medallions for second place now cost around US$19 an ounce to smelt.

What’s gold’s angle? Why such a sudden move?

“There doesn’t seem to be much reason to sell gold,” offered Darren Heathcote of Investec Australia.

What Darren means is that the reasons for gold bullion’s recent rise haven’t yet left the building. Falling asset prices and the threat of economic recession are driving worried investors into gold, like bears into a honey factory.

That’s an interesting topic in itself. A drop in one your investments causes an emotional reaction… it causes you to question the value of your choice. People don’t buy gold because stocks and the US economy look fundamentally bad. People buy gold because when something falls in value, they feel uncertain. And nothing is more uncertain than US economic growth today.

So, dollars that were sitting in stocks and derivative assets are relocating to Goldville. It’s investment demand at work. And that leaves the gold price open for both correction, and further gain. The companies best placed to pick up the gains in bullion are probably gold juniors. We’ll look at this more over the next few days.

Al Robinson
The Daily Reckoning Australia

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
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Comments

  1. Hi everyone, I was just wondering- do you think that during a depression or recession, it is better to have gold bullion, or gold coins? Or a mixture of both?

    Reply
  2. That’s like asking “is it better to have quarters or dimes, or a mixture of both?”

    Reply
  3. What does that mean? Are they both good? What if I went to the local 7-11 to buy some groceries and gave the man at the counter a bar of gold bullion. Wouldnt he look at me like Im an idiot?

    Reply
  4. Well you’d be an idiot to trade a bar of gold bullion for some groceries, considering it’s probably worth closer to the entire 7-11.

    What I meant, christina, was that gold’s value is in the metal itself, not the shape it takes. It’s worth the same per pound whether it’s in the shape of coins or bullion. For investment purposes, it makes no difference. For currency purposes, I doubt you’ll ever be able to walk into a 7-11 and use gold to buy something, but we shall see.

    Reply
  5. Oh, thanks for that, I appreciate it a lot. Now that I know how much a bar of gold bullion is worth, that’s pretty funny what I said about the groceries huh? I thought that you actually go into a shop and use the gold bullion to buy stuff. How embarrassing :-) Thanks heaps for your answer, I do appreciate it a lot. So, during a depression, how do you spend your gold if you want to buy groceries?

    Reply
  6. Former Sec. of the Treasury Larry Summers wrote his Doctoral Thesis, on Gibson’s Paradox…
    What it basically boils down to,is that the price of gold is inverse to interest rates..
    It would suggest you keep your gold, till interest rates go double digit….> 10%

    Reply
  7. Use your bullion to buy bulk tobacco & grog & then barter for food if the currency has collapsed ;)

    Reply
  8. Thanks heaps to everybody, they are the best answers. So what happens to gold when interest goes double digits? Are you supposed to sell it then because it gets worth less or something?

    Reply
  9. Is there anything alike to gold bullion shares for platinum? If so please let me know the ASX code.

    Reply
  10. lol…they stopped answering your questions

    Reply

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