Ever since the Fed intervention, the gold market has been in a sell-off, which has produced some of the best opportunities to buy gold we’ve seen in two and a half months. Posted by James Randolph on December 16, 2011
Banks Buy Gold
December 16, 2011 – Ever since the Fed intervention, the gold market has been in a sell-off, which has produced some of the best opportunities to buy gold we’ve seen in two and a half months. As prices have fallen nearly 9 percent this month, some analysts and traders are actually questioning the safe haven status of the precious metal in the face of thousands of years of history as a store of wealth. Gold is linked to some markets and is linked to other commodities, but more instances of decoupling are occurring in recent years than anything else. The questioning of gold’s status or value is totally off base but certainly indicates an opportunity for smart investors.
Perhaps at the heart of this issue is the war between paper and tangible commodities. Ever since Nixon took us off the gold standard, there has been an ever-widening gap between the value of actual physical assets and the value of the dollar. One remains constant, the other changes. It costs, in gold, the same amount to buy a dozen eggs today as it did fifty years ago. The price in dollars, however, has changed a bit.
Since the 80’s, Wall Street’s love affair with paper has spun wildly out of control. Financial abstractions upon abstractions up abstractions were created and sold regardless and independent of underlying and physical value. There are $707 trillion worth of Over the Counter, independently valueless, paper derivatives currently in existence in December of 2011. That is equal to the GDP of the entire planet for 11.2 years.
Given that kind of derivative to GDP ratio, gold’s status as a safe haven and a tangible commodity is more sound than ever. In fact, to say otherwise would require a blatant disregard for the facts that currently look us in the face. When gold had a similar drop in price in September, central banks around the world started buying it at forty-year highs. We won’t know until the first quarter of 2012, but with Goldman Sachs, Credit Suisse, and Societe Generale all circulating reports that gold is set to perform through the year, we can assume the central banks are currently buying at record levels. You should buy gold as well.
Senior Staff Writer – Certified Gold Exchange