Trend: The price of gold is approaching an all-time high, boosted by significant upward moves in the first three days of September.
The explanations for the increase in gold prices vary with the political and economic perspective of the person commenting. While prices "don't lie", there's always the possibility of a push by major players who smell an opportunity for big profits, like the oil price run up in the summer of 2008. Chinese buying gold, Fed policies, a declining dollar, excessive lending and debt, and Wall Street's hold on Washington are all discussed below.
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From Paul Mylchreest's Thunder Road Report (via Kitco.com):
Apparently China is pushing the idea of buying gold and silver for investment purposes to the general population in the way that Western television sells soap powder. If 1.3 billion Chinese citizens start buying gold and silver, even in tiny quantities, imagine what that will do to the market!
The report notes that China's Central Television, the main state-owned television company, has run a news programme letting the public know how easy it is to buy precious metals as an investment. On silver investment the announcer is quoted as saying " China has introduced its first ever investment opportunity for silver bullion. The bars are available in 500g, 1kg, 2kg and 5kg with a purity of 99.9%. Figures show that gold was fifty times more expensive than silver in 2007, but now that figure has reached over seventy times. Analysts say that silver has been undervalued in recent years. They add that the metal is the right investment for individual investors and could be a good way to cash in."
What appears to have happened in China is a total relaxation of strictures on holding precious metals by the individual with the government pushing gold and silver as an investment option, seemingly at every opportunity. This is a far cry from the situation only a few years ago where the distribution of gold and silver was strictly controlled. Now, the Thunder Road Report notes that every bank will sell gold and silver bullion bars in four different sizes to individuals and gold related investments are said to be soaring in popularity.
Simply put, the Chinese government is trying to trigger a national gold craze...and it's working. The Chinese public now has gold trading platforms on steroids.... ...Also, for the first time in history, Chinese investors can even trade gold abroad (in London) with the swipe of a ‘Lucky Gold' card. I can't even get Bank of America to open a foreign currency account.
"Early this week, it was announced that President Obama intends to reappoint Fed Chairman Ben Bernanke to a second term in January, signaling a vote of confidence in him. Bernanke seems to be popular with the administration and with Wall Street, and with good reason. His lending policies have left big banks flush with newly created cash that covers up old mistakes and allows for new ones. By buying up mountains of Treasury debt he has also enabled spending to soar to ridiculous levels that should startle any responsible economist, and scare any American concerned about the value of the dollar. However, these highly sensitive decisions about our money are not made by economists, they are made by politicians. Bernanke, like most of his predecessors, is the politician’s best friend. However, there is no reason to believe any other central planner would behave any differently, considering the immense political pressure on the Fed.
Fed policies have been as bad for the economy as they are good for politicians and bankers, as the recently released numbers on the debt and deficit demonstrate."
Richard Russell, editor and publisher of Dow Theory Letters, in remarks posted on his website on August 27th (via Monex.com):
No nation (the US) can be both the world's leader and world's biggest debtor. In his fight to thwart the bear market, Bernanke is sowing the seeds for the future demise of the United States. The law of unintended consequences is about to become operative.
A huge problem ahead is this -- will the dollar decline slowly, as it has been doing, or will the dollar crash, setting off a world crisis?
Prediction -- Where ever you are now will be your best situation for years to come. The trick ahead will be to hold on to what you have. I've been warning that a ‘hard rain is a'coming.’ So far, we've only experienced a drizzle.