Wednesday, September 26, 2012

Gold is not just a lunatic fringe investment

I was so happy being part of the Gold buying "Lunatic Fringe", oh well I will just have to be happy being part of the Silver buying Loonies with our 16% (AUD) or 24% (USD)  pa returns.

Gold is often derisively referred to as an investment that only kooks who are preparing for the end of the world in a bunker can love. But it might be time to stop with all the gold bashing.

Sure, plans to return to the gold standard may still seem a bit extreme. (Sorry Ron Paul and your loyal minions!) Yet if you look at the reason why gold has done so well lately, it seems logical to expect the price of the yellow metal could continue to climb, blow past its current all-time high (not adjusted for inflation) of about $1,923 an ounce and surpass $2,000 in the process.

Gold is hovering around $1,770 right now. The price has risen more than 12% since the beginning of the year and is up 6.5% in the past month alone. Gold's rally first started to pick up steam a few weeks ago, on the back of the European Central Bank's plan to buy up bonds of troubled sovereign nations.

The Federal Reserve followed the ECB's lead and launched QE3 just a week later. Central banks in Japan and England are also in easing mode and with China's economy slowing, it would not be a huge shock if the People's Bank of China were to soon announce its third interest rate cut of the year.

Add all that up and it's very bullish for gold. Central banks printing money like there's no tomorrow ultimately should lead to lower values for the currencies of countries in easing cycles, as well as inflation. And inflation is gold's best friend.

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