Gold bugs are like turtles.
On bright, sunny days turtles stuff their stuff on a local log. But at the first sign of danger these reclusive creatures retreat into their shell or just up and move.
I see the same behavior with gold bugs…
When the getting is good gold bugs come out of the woodwork — say, back in mid-2011 when the price of the metal was making a penultimate step to 1,900 an ounce.
To say the least, if you wanted fresh commentary on gold you could find it — the Financial Times, Wall Street Journal, Bloomberg, you name it and they were running lead stories on the shiny stuff.
Then, the storm clouds came out.
Gold prices meandered lower.
The gold bugs retreated into their shells.
And commentary on the all-important metal vanished into thin air.
That’s the nature of the business though. Those mainstream news sources rarely break a cutting-edge commodity trend.
For instance, one gold story that I did see today — in section-C of the Wall Street Journal mind you — is about gold investors moving towards the exits.
Ha! You think so? After an epic pullback in prices it’s pretty fair to say that “investors” are moving towards the exits….and by that I mean they have already left the theatre, brushed their teeth and nestled themselves in bed.
What’s more interesting though is the reasoning for this mass exodus. According to the article “investors are finding more comfort in U.S. treasurys and German bonds.”
In the face of a euro financial crisis, the short-term move into stable currencies is warranted. But it’s not a long-term solution to the problem.
You see, nothing has changed in the way that governments handle large-scale predicaments. Much like 2008’s market meltdown, when the U.S. threw over $700B at the problem, the European Central Bank (ECB) will surely use inflationary tactics.
To be clear, this problem isn’t going to magically disappear. We’re not going to see Greek austerity. There will be no turnaround for the euro. Instead these different nations tied by one currency will falter until a long-term solution is figured out.
In the medium-term, while ECB tries to remedy the solution, it’s only a matter of time before the cash really hits the fan.
The situation is eerily similar to what happened here in the U.S. in 2008. And the price of gold is embarking on a very similar path, take a look…
In 2008 the U.S. subprime crisis put downward pressure on the financial markets and gold, alike. Today the same thing is happening with the euro crisis.
For the Eurozone this means choppy water with a whole lot of money printing. For the rest of the world this will mean more financial easing — much like we saw after 2008’s market meltdown.
As this situation becomes more evident, the price of gold will rise. Back in 2008, market forces pushed the price of gold lower, even in the face of a $700B stimulus plan. Then the metal staged an incredible rebound — soaring 153% to new all-time highs.
Looking at today’s gold chart, we could be set for a look-a-like rebound.
Similar to 2008, I’m not one to call the bottom of a market. From here prices could still head lower. In fact, a pullback similar to what we saw in 2008 could bring gold to a short-term low of around $1,425.
Prices will however head higher over time. Until governments around the world figure out how to deal with these large-scale crises, the wealth protection that gold offers will lead to an increase in the price for the metal.
In fact, while short-term investors flee to “more stable” instruments like German bonds or U.S. treasuries, you’ve got a solid window to play beaten down gold.
Indeed, the recent mini-rally in the U.S. dollar has put extra downward pressure on the price of gold. Now may be a good time to look at the beaten down metal. Be assured, by the time the mainstream media picks up the story, it’ll be too late.
Keep your boots muddy,
Matt Insley
Source: Daily Resource Hunter
