Gold Investments Market Update – Gold’s Fundamentals Stronger Than They Have Ever Been

Gold’s Fundamentals Stronger Than They Have Ever Been Gold and silver fell yesterday (both by about 2% ) on profit taking before rallying again in after hours trading and then falling in Asia. Volatility remains at a fever pitch in all markets. Gold remains in a range between $850/oz and $910/oz and may need further consolidation at these levels prior to further gains. Further gains seem very likely in the coming days as Paulson’s bailout plan seems to be in increasing jeopardy and markets are very uncomfortable with the increasing degree of uncertainty regarding the bailout plan. Uncertainty is the last thing that the US financial system needs right now and political wrangling should see gold well supported. This may be more than the typical pork barrel political wrangling as there appears to be bipartisan opposition to the bill amongst some influential Democrats and Republicans. Besides obvious anger regarding the possibility of further multi billion "golden parachutes" to many of the executives who helped get us into this mess, some are vehemently opposed to the bill for other financial and economic reasons. Some are also opposed on political grounds as well claiming that the bill is akin to the Patriot Act. The bill has been dubbed the "Financial Patriot Act" as they believe that it amounts to a massive aggrandisement and centralisation of power to a degree seen only in communist countries such as the Soviet Union. Those concerned about the bill worry that it creates an abdication of all Congressional oversight and fiscal authorities to a secretary of Treasury and grants greater powers to the secretary of the Treasury than even the president enjoys. Richard Shelby, the senior Republican on the Banking Committee called for "a comprehensive and workable plan for resolving this crisis, before we waste $700 billion of taxpayer money." The Banking Committee Chairman, Chris Dodd, said that "after reading this proposal, I can only conclude it is not just our economy that is at risk but our Constitution as well." The printing presses are working overtime and Bernanke’s monetary helicopters are showering dollars onto the financial system. Rather than showering the US citizenry with tax dollars, the Federal Reserve is bailing out Wall Street despite their irresponsible, massively leveraged financial practices having brought the US financial system to its knees. The US international creditors are facing their own economic difficulties and are becoming increasingly nervous about their dollar denominated assets. Even if they begin to curtail their purchases of US treasuries and other US assets, the dollar may fall significantly and it is very likely that they, like the German Bundesbank and other central banks, are looking more favourably at gold and will be adding to their meagre gold reserves in the coming months. In this environment, one would have to be ignorant of financial, economic and monetary history and or biased against gold not to be extremely bullish.

Mark O'Byrne

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