The price of gold started the
year on a positive note, rebounding from support at $1,550 per troy ounce
back towards $1,600 and extending its decade long bull market. The future
looks just as bright for the yellow metal, as real interest rates remain
negative around the world and, as Bloomberg
world’s largest governments are facing the daunting task of refinancing
over 7 trillion dollars in 2012. As the markets’ appetite for sovereign
bonds dries up and the perception of fixed income as “riskless
assets” goes the way of the dodo, the easiest way out for the debtors
will be to print and inflate.
Improving macroeconomic numbers
from the US are being seen by some economists as the first signs of
accelerating inflation, especially given the rise in key energy and
agricultural commodities, while others are playing the “green
shoots” song again. Meanwhile the Chinese slowdown, exemplified by the
Hang Seng Index’s 9 month and 25% drop, has
sparked increasing concern over whether the Asian giant will see a soft or
hard landing, and how that will affect the world economy. Both Japan and
China will be less enthusiastic buyers of US sovereign debt, unless of course
it is done with newly printed money and for currency manipulation purposes.
The demoralizing end of year
drop in the price of gold spooked many gold bugs, however, “If you can
keep your head when all about you, are losing theirs…”
and take a few minutes to look at the fundamentals, you will see the wisdom
of holding onto your gold, and perhaps even deciding to buy some silver,
which at under $30 per troy ounce is looking like a real bargain. As long as
the long term bullish trend is undisturbed and the fundamentals remain in
place, the best plan is quiet, steady and methodical accumulation. Emotions
are always the enemy of prudent investment and saving.
Spain’s announcement today
that the budget deficit will overshoot 8% (when the official target was under
5% just a few months ago), casts a long shadow over the euro. We are well
past the point where the euro-periphery trembled but could hope to be bailed
out by the euro-core.
In the US the primaries, starting
with the Iowa caucuses today, will see foreign policy compete with the fiscal
crisis for the spotlight. Whatever the outcome, precious metals will remain
the only store of value that do not depend on someone else’s promise
and that cannot default.