one of my archive posts-

  1. 22,691 Posts.
    Subject + + is there urgency to invest in gold? + +
    Posted 20/10/04 10:44 - 60 reads
    Posted by stolwyk
    Post #394606 - start of thread - splitview

    I suppose you all know I hold gold stocks. I bought these for 2 reasons:

    Should the price of gold rise than the share prices of these stocks are bound to rise.

    If the gold price doesn't rise, then I am relying on expansion of these gold companies and hence on a rising share price.

    The world situation is deteriorating while the $US did fall below 87 cents, a crucial point.

    While the consumption of cars in the US increased somewhat, it decreased in other fields.

    Needles to say that a lot of money spent was borrowed money.

    The US keeps on printing money but overseas investors don't like it and are buying less US Bonds. The Central Banks are supporting the US instead.

    It is difficult to say when these Banks and the biggest Bond holders (China, Japan) will start buying less US Bonds. My opinion is that this won't be too far off.

    In that case the US to finance its twin deficits, will keep on printing money but it has its limits as the $US is bound to fall furher.

    The Chinese in the meantime are quietly converting some of their US$ into Mining assets, most likely on a world wide basis.

    That would then make it somewhat independent of rising metal prices and will ensure that most of their metal demands are met. This will be followed by other investments. (In that case, the Western world may run short of metals with resulting higher prices. A dangerous moment could arrive when China could dictate prices)

    These investments will be paid in $US (Or if refused, in some other currency), the end result will be that some $US will ultimately return to the US, thereby creating inflation- increasing the US dollar pool).

    Some oil suppliers want their contracts made out in Euros, so the $US will be used less in trade. Already the Euros are being used for payment of oil deliveries.

    Less use of the $US means that some US currency is returned to the US. Selling of the $US will finally depress the $US further.

    As disenchantment with the $US increases (The ordinary investor doesn't want to lent to the US if the value of his asset decreases when selling the asset and transferring the proceeds to his own country) the effect will be a further reduction of the $US.

    When big interests feel that a major fall in the US$ is near, then much currency leaves the country.

    Unless the Central Banks support the $US when an attack is made on that currency, then it will fall. At the moment that fall is in an "orderly" fashion but it may not necessarily be the case in the future.

    Meanwhile, the political situation in Iraq, Saudi Arabia is at best a difficult one.
    Some damage to key oil- or other installations caused by whichever terrorist group is always possible and can be sudden.

    The image of the US in the world has declined sharply and this will have an indirect effect on the $US: some countries don't like trading in $US.

    The DOW is deteriorating. This can result in margins being called up and assets being sold to raise cash. If the Dow falls heavily then this effect will spill over in the Real Estate and other sectors, finally causing a possible stagflation: Inflation while the economy is

    Often, in times of stress the US investor tends to quickly sell their overseas stocks and in doing so, introduce a "less desirable" outcome in other countries as well.

    Any massive fall in the $US will depend on the convergence of above mentioned factors.

    In my opinion, an investment in gold (I prefer the bigger explorers) is warranted to protect one's assets. At one stage there was no advantage in gold investment because when the $US fell and the gold price rose, the local currencies rose as well resulting in no change or even a decrease in the value of gold when expressed in local currency.

    We are waiting for this to change and there are signs that the EURO is already decoupling from the $US.

    Sofar the US and other Central Banks have thrown more gold on the market whenever the price rose; however, that can't last forever.

    The current $419.50 is way above what these vested interest like to see; there are just too many buyers around.

    Readers, please do your own research and you decide if and when to buy, hold or sell any stocks. To visit archived posts, please use the Search button.

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