Inflation

What happens when the Government pours 1.3 trillion USD into the world? Devaluation of the USD which in-turn spurs dollar denominated commodities ever higher.

As Christopher Barker writes for the Fool.com, “there has been a clear negative correlation over time between the value of the U.S. dollar and the price of gold in dollars. For this reason, I view every subsequent commitment of dollars by the billions as a billion more reasons to own gold.” Its just this simple, as the governments dig deeper debts, prudence moves more money into real money.

Scarce Supply

In Economics 101 students learn the basics of economics: The Law of Supply and Demand. The supply for gold has been drying up.

The futures market in Vietnam lacked an adequate supply to redeem contracts for bullion, and the U.S. Mint ran out of the popular gold buffalo bullion coin, and many other coin sellers are reporting a lack of suppy.

Developing Demand

On top of a scarce supply, the demand has been shifting as well. The physical holdings of the SPDR Gold Shares (GLD) ETF soared to a new record above 755 tonnes of gold at the end of September. That’s more gold than China held in reserve as of June.

Furthermore, the Central Fund of Canada (CEF), a closed-end fund that owns gold and silver, issued another non-dilutive share offering in September to purchase more bullion. Renewed investor demand, combined with a short supply, may very well push Gold to record levels.

No related posts.