Gold for December delivery was up US$11.70 after the Fed broadcast its intent to sacrifice the dollar on behalf of the housing market. We realised the significance this morning when we noted that the futures price—at US$735—is at 27-year high. That’s longer than most of our co-workers have been alive.
Spot gold is at US$723. And unlike oil, we don’t expect the high gold price to lead to lower demand. Just the opposite.
The more the Fed cuts interest rates, the higher gold will go. As our friend Porter Stansberry put it, “The Fed will cut, and it will continue to cut, because its mandate is to protect the banks (yes… I know… its legal mandate is officially “price stability,” ha, ha, ha… I’m talking about its actual mandate, though). Having made hundreds of billions in bad loans, the banks – once again – need to be bailed out.”
“Like geese that feel the winter coming even when it’s still warm outside,” Porter continues, “wise investors have watched the credit bubble build and have flown to gold. Anyone with any sense has long since bought gold – as we’ve been preaching regularly since 2003. Soon, the kind of investors who like to chase performance (a short-lived, but sometimes influential group) will jump into gold, too. That’s when you’ll know it’s time to take some off the table…”
It’s probably not time yet, though. Here in Australia, the gold sector was up nearly 2% yesterday. Major producers Newcrest (ASX:NCM), Sinogold (ASX:SGX) and Lihir (ASX:LGL) are all up smartly today. Smaller gold stocks will likely soon follow.
In the big picture, you’re already seeing Aussie dollar strength, and a rising gold price in Aussie dollars too. Economically, however, the same fundamental problems that have laid America’s economy low also afflict Australia’s economy: debt, globalisation, and dependence on rising housing prices. Though the resource story is bullish, the debt story is not.
Markets and Money