Published:
February 23, 2009
Will gold climb higher?
That's the question on many
investors' minds right now - and the
financial media are chock full of
opinions and forecasts.
As we've seen gold approach the
landmark $1,000 level over the past
few weeks, many gold bears have
crawled out of the woodwork to
advocate shorting the metal.
These guys really need to try
working on their originality - not
to mention their accuracy. This is
the same argument they trotted out
when gold was trading around $860.
Since then, gold has climbed to the
$960 level, thanks to a host of
reasons...
When All Else Fails, Buy Gold...
Right?
While the U.S. dollar is stronger
these days, the economy and stock
market are considerably weak. Plus,
with interest rates at zero,
inflation is dead and people are
paying the government to hold their
money amid more signs that prices
will fall further.
The answer to our problems seems
obvious, right?
Buy gold - and a lot of it.
But let's rewind to the late 1970s
and early 1980s - when gold last
reached the levels we've seen in the
past couple of years.
From The 1970s To 2009... The Yellow
Metal Through The Years
Back then, interest rates were
exploding by over 16%... inflation
was soaring... oil prices were
heading higher... the U.S. dollar
was stable... and the stock market
was undramatically meandering
flat-to-lower.
But there's no doubt that inflation
was the big story - so it made sense
for gold to run higher.
Now flash forward to today...
The situation is almost the exact
opposite. Despite the drastic
dissimilarities, gold continues
climbing to the point where it's
actually making new highs in many
non-dollar currencies.
Of course, it's no secret why people
are betting on gold. With the way
governments around the world are
printing money and debasing their
currencies, inflation seems like the
only logical result.
The Real Reason Why Gold Is Moving
Higher
Gold is clearly moving higher as a
hedge against catastrophic failure
of the global financial system.
In fact, that's the very reason we
recommended that our
Xcelerated Profits Report
members buy gold last September when
the metal was trading in the $600s
and $700s.
But that was then. Today, gold may
be moving up for a more sinister
reason - one that many folks aren't
fully considering...
Gold might be making its move higher
because it expects interest rates to
rise and the U.S. dollar to fall.
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What?
I understand if you're shaking your
head in confusion. After all, this
theory doesn't seem to make any
sense. Everybody knows that when
interest rates move higher,
currencies strengthen.
That's true... usually. But that
also happens when economies get
stronger.
Still, with some experts predicting
that we could endure these tough
times from anywhere between the next
10 months to the end of this current
presidential term, people are
projecting a rise in gold for more
conventional reasons.
But they might be overlooking one
scenario...
Gold Is Rising... But Maybe For
Different Reasons Than The Headlines
Say
In a couple of years, the U.S. will
have issued more than $3 trillion in
new Treasury money. This will flood
the market - and not in a good way,
because the market only works if
others are willing to buy the debt.
So with all this currency floating
around, investors may clamor for
higher rates from the U.S.
government in order to offset the
risk of holding paper that is backed
merely by printing press... and
little else.
That scenario could mean higher
interest rates when the market least
expects it - and when the economy
simply cannot handle it. This could
result in a massive blow to the
economy, causing the government to
further "stimulate" growth by
printing even more money.
At that point, we bounce from
inflation to hyperinflation. Not a
pretty scenario, to say the least.
But is this really what could be in
store for us? Is that what gold
prices are signaling today?
Let's hope not. But don't be so
quick to put today's upward run in
gold prices today down to just "the
bad economy" and "speculation." To
be on the safe side, I'll welcome
any pullback to add to my
positions... maybe you should, too.
Best regards,
Karim Rahemtulla
Investment Director, The Smart
Profits Report
P.S. For specific investment
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About Karim Rahemtulla
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