Gold Bulls Come Back

After a couple of devastating days for the gold market a couple of weeks ago, gold showed signs of life this past week.  It ended the week over $1,450.  We might look back on the last couple of weeks as the last opportunity for relatively cheap prices.  It has given an opportunity to all of the procrastinators of the world, or those just becoming familiar with the benefits of owning gold.  Of course, the procrastinators probably just procrastinated again.

After the two big down days, I read several stories saying that people were lining up to buy physical gold.  I’m guessing that these were mostly people who already owned gold and were adding to their holdings.  Most of the stories seemed credible, but it is always hard to say.

Just glancing at a few prices on the web, it does seem that the premiums for gold coins are a bit higher than typical.  Over time, the physical gold market and the trading market (with digital money) will tend to be close.  When there are big moves in the price in a short period of time, it is not uncommon to have a little disconnect.

I read and hear stories all over the place about how “they” crashed the gold market.  I can never figure out who “they” is.  It is supposed to be this big conspiracy between Goldman Sachs, bankers, the Fed, the government, and inside investors.  Anything is possible, I suppose.  But just because the price goes down big in one or two days doesn’t automatically mean it is “manipulation”, unless by manipulation you simply mean people wanting to sell what they have.

In the long run, it doesn’t really matter.  Even if Goldman Sachs is intentionally trying to push the price of gold down, it won’t work for long.  Even its resources are limited.  And we could see that when prices did come down, many buyers rushed in looking for a good deal.

No matter how you slice it, the Fed is creating new money out of thin air like crazy.  The adjusted monetary base has just surged past $3 trillion.  It was just over $800 billion less than five years ago.  It has almost quadrupled in that time and the Fed is still promising to create $85 billion per month.

While I can’t predict the future, I am reasonably confident that gold will be a lot higher in 6 months than it is now.  If that does not turn out to be the case, then I am reasonably confident we will be in another recession (officially).  And if we go into another deep recession, then we can just expect more money creation.  So either way, I see higher gold prices.  It is just a question of whether it will be really soon or a couple of years down the line.