Adrian Douglas, Chairman of GATA and author and founder
of Market Force
Analysis has given me permission to republish this excellent article
titled: “A Good Time To Buy Gold”. I hope you enjoy reading it as much
as I did. I have a deep respect for Adrian's work and analysis on the
gold and silver market. He has received accolades from John Embry and
Eric Sprott about his unique algorithm and methodology
for analyzing the precious metals markets, and the conclusions he's
drawn about the suppression of the price of gold and silver.
When Adrian goes out of his way to send a specific message like this
one, I urge everyone to read it.
A Good Time to Buy Gold, By Adrian Douglas
Many investors are unsure as to whether gold is a good
investment and if gold will continue its rise in price that started twelve years
ago. Those who have not invested in precious metals may well be thinking that
their investment is too late. Other investors who hold the metal are
wondering if gold will fail to reach new highs.
A reassurance that precious metals are nowhere near their
potential is that the world has in no way started to resolve the massive debt
burden that has been created. Precious metals are one of the few things that
can be purchased that have no counter party risk. I prefer to look at
precious metals from the different view point that paper money is being
debased at an alarming rate due to excessive issuance of paper and it is the
precious metals that are not altered. By holding precious metals, one is
able to preserve purchasing power. In fact, when panic sets in, the rush for
precious metals will actually increase purchasing power.
It is important that investors understand the function of
gold. Gold is unlike any other commodity that exists; it has the unique
property of having no other use except as being held for intrinsic value.
Almost all the gold ever mined in the world is still available above
ground. This is the purpose of gold in that it is held as an asset. Some gold
may be used for jewelry or electronics, but this is a small portion of the
available gold and, in any case, it is always recycled because it is so
valuable. The most important thing to understand about the mechanism of gold
buying and selling is that it is central to the world of finance. If there
were to be a drought in the U.S., reducing grain harvests, the price of grain
would rise. Gold, however, is not consumed, and is unaffected by
seasonal variations.Furthermore, the total stock of gold is large compared to
the yearly addition which makes the supply extremely stable.
In searching for the rationale for investing in gold,
there is undisputable proof as to why gold is the most valuable asset on
earth. This evidence comes from the central banks themselves. The central
banks only hold two assets; one is paper assets, the second is gold. They
do not hold soybeans, oil, orange juice, or any other asset. The only
intrinsic asset they hold is gold. The central banks prefer to operate in
terms of paper currency. This gives flexibility to expand their
provision of credit far beyond the ability to repay it. When the cycle
of money expansion comes to an inevitable collapse, the central banks must
return to the ultimate money of gold. Once excessive credit has been
eliminated or reduced, the cycle of credit expansion will begin again.
This is how the central banks operate. We have just entered a cycle of
excessive credit expansion and so the massive credit excess must now be
eliminated. They must also return the gold that has been leased on a
leveraged basis. This is the environment in which precious metals reach their
potential. All around the world, central banks are increasing their holdings
of gold. The central banks are the masters of the universe when dealing
with the world’s finances. When the central banks are owners of only paper
money and gold, it is clear that following in their footsteps must be the
most intelligent strategy. The central banks try to slow down the move into
gold by creating sudden and violent sell-offs. Such take downs are
effective against leveraged traders but not those who are serious buyers of
gold. While the central banks are net buyers of gold, we can be certain that
the gold market will continue higher. As I write this article, gold is
trading at $1552. This is likely to be a turning point as gold continues higher.
As stated previously, it is paper money that is losing purchasing power
rather than gold increasing in value. This is assured by the fact that
central banks are showing a preference for gold over paper money. This
preference is in its infancy and the equilibrium has a long way to go to
reach its true balance.
