April 18, 2009 – Gold Prices

When the French populace could not buy bread during the French Revolution, Marie-Antoinette supposedly said, "Let them eat cake." Actually, what she really meant was to let them buy cake at the same price as bread. Those two interpretations are far apart in meaning, but as a misquoted politician she went down in infamy. Besides, who is to say she really did not mean exactly what it sounds like considering how she acted during difficult times?

It seems governments of all kinds have communication problems and it will never change. For example, US Congressman Barney Frank said that Treasury Secretary Paulsen was told to help people in danger of their homes being foreclosed when he was distributing bailout funds. No..no…no…said Paulsen. He claimed he was told to bolster economic stability and that has nothing to do with economic security.

What was that again? Could you repeat that?

Gee….I thought helping taxpayers find economic security was a major factor in finding general financial market stability. It seems to me that people who are secure in their jobs and secure in their finances make sound consumers who stimulate the economy. When you don’t spend and I don’t spend and your neighbors don’t spend, the economy quickly sinks. And that is exactly what is happening. The banks may not want to use the taxpayer dollars to ease credit markets for consumers, but they are also going to be crying foul soon. The banks are facing foreclosing on another 5 million homes in the next 12 to 24 months. And because they are making it extremely difficult to get a loan, people are not buying cars or major appliances or anything else that cost more than a bag of groceries (which is expensive enough).

The banks are, in effect, telling US taxpayers to eat cake since they can’t afford bread.

Mr. Paulsen was thumbing his nose at Congress and pointing out that cake could be cut different ways. Paulsen was saying "my way or no way".

Everyone agreed that what President Barack Obama really needed to do was announce who he planned on making the new Treasury Secretary. Back then Treasury Secretary Paulsen had the luxury of being able to be defiant because he wouldn’t be around much longer. In fact, he said he did not want to ask the US Congress for the second half of the $700 billion bailout package and was going to let the next sucker…..I mean….Treasury Secretary…. handle the job.

The world is watching the United States to see if it can restore financial stability. What is puzzling is that gold prices are not moving up like they should be. But what a great opportunity for precious metal buying while prices are stable! There is a lot of pent up value residing in gold and there will be a rally in the near future.

The speculation among gold investors is that the Feds are manipulating the price of gold to avoid the appearance of inflation through rising gold prices. This is purely speculation, but these speculations back up the belief that the price of gold is not going to stay at its current level much longer. The price is predicted to rise significantly as it becomes a safer and safer financial investment in view of fumbling and stumbling equity and currency markets.

The fact is that US Treasury securities and gold are the two safest investments, and of those two, gold is best choice. The US Treasury securities look like safe haven assets, but there is a lot of doubt built into the economic system right now. The US has been unable to prevent a continued slide towards recession (depression) and the expected recovery time is extended every week. It looks like it will take all of 2010 for the US economy to start heading in the right direction again. What this means is that the government gurus are really uncertain about what they are doing to salvage this economic mess.

To all US citizens, here is a question. How does it feel to live in a country that has single handedly brought down the entire global financial markets?

A financial analyst made an interesting point. He said that what is going on in the United States is a crisis of the system and that system is capitalism. What a downright frightening thought. The very credibility of the US currency is in question. Who would have ever thought things could get so bad? And is hyperinflation the next order of business?

Gold prices will go up. There is general agreement among analysts that it should be going up now, but it will rise in the near future as the impact of the currency injections into the world economies shakes out. Right now gold is at its lowest level. It is at an arbitrarily low price instead of the "should of – would of" price if the free commodity markets were operating normally.

There are other factors which are making it a great time to buy gold. Institutional selling of gold is at high levels right now as companies seek ways to raise cash. In fact, the institutional selling is offsetting the retail buying of gold bars and coins. The demand for gold bars and coins remains extremely strong, and it is due to two primary factors: the suppressed price as discussed and the need for investors to find a safe place to park their money.

In the long term, the global financial markets are going to have to be redefined. The crisis in the capitalistic system has created a crisis in every other financial system in the world. If anyone has ever wondered exactly how "global" global can get, they now know. I really don’t think the average investor, not the big time movers and shakers, understood how intricately entwined the financial markets were/are are no matter what kind of government a country had installed.

This integration of the financial markets has made it clear that part of your investment portfolio should be in the safest investment possible which is gold. There is just nothing like gold when it comes to maintaining long term value. It also gives your portfolio a lot of selling and buying flexibility. As other assets fail to perform, you can be assured that you will be able to trade in gold.

Danny Burns

April 18, 2009

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