Gold Investments Market Update – Oracle of Omaha Warns of “Onslaught of Inflation”

Gold rose sharply in Asia and was up by more than $10 per ounce before trading even commenced on the TOCOM – it rose from $941.60/oz to nearly $960/oz but has given up some of those gains in early trading in London and is now trading back at $950/oz.

Gold and silver fell over 5% and 9% last week after surging in the previous weeks and remain up nearly 8% and 17% so far in 2009. In the short term anything can happen in all of these markets and volatility remains very high in all markets. Correction and consolidation was expected and warned of. Those using derivatives and leveraged speculation continue to get their heads handed to them on a plate and will continue to do so. Passive long term investment through real diversification is essential today.

Stock markets are again taking a pounding today with Asian and European bourses down sharply (Nikkei -3.8%; FTSE -4%) on understandable concerns about the ruptured financial system and a global recession spanning the globe. HSBC will attempt to raise $12 billion in order to recapitalize and AIG is set to be quasi nationalised with another huge injection of US funds – a $30 billion rescue. In this climate it is hard to see gold falling much below these levels and gold should be supported between $900/oz and $930/oz.

Oracle of Omaha Warns of “Onslaught of Inflation”

Legendary investor, Warren Buffett has admitted making mistakes and warned that the US economy was in “shambles” this year and “probably well beyond”. He said that reckless lending had caused the worst “freefall” he ever saw in the financial system which had made investors “bloodied and confused”.

Mr Buffett also warned that the greater reliance on government aid was likely to lead to unwelcome and lasting consequences for the wider economy: “In poker terms, the [US] Treasury and the Fed have gone ‘all in’. Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once-unthinkable dosages will almost certainly bring on unwelcome after-effects. Their precise nature is anyone’s guess, though one likely consequence is an onslaught of inflation.”

Gold has proved itself a safe haven asset in the worst deflationary slump since the 1930’s (as it did during the Great Depression). Should the ‘Oracle of Omaha’s’ warnings of a vicious bout of inflation come to pass then we will likely see gold really come into its own and likely see it perform as it did in the 1970’s when it rose from $35/oz to $200/oz, then fell to $100/oz consolidated and then surged to over $850/oz. As ever investments can fall as well as rise and important that investors do not have all their eggs in any one basket – including the gold basket.

Mark O'Byrne

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