1001 Reasons to Buy Gold
Well, not quite 1001, but reasons to Buy Gold nonetheless...
TRACKING the numerous ongoing bullish factors for Gold Prices is quite a chore, says Jeff Clark, senior editor of Casey's Gold & Resource Report.
Because there are, quite literally, so many compelling arguments for holding our favorite metal. So many, in fact, that I used to catalog them each month in our letter.
The reason there are so many "reasons" is because Gold Bullion is unlike any other asset. It...
- responds to its own supply and demand;
- protects against short-sighted government actions and interventions;
- is a bellwether of market sentiment and economic outlook;
- protects against currency devaluation and inflation;
- is global;
- is one of the most beautiful metals ever found in the earth's crust;
- is a store of value;
- is timeless;
- is money.
How many assets can you say have all those characteristics?
In spite of the Gold Price's recent correction, the reasons haven't decreased. In fact, the case for Buying Gold and holding it is stronger than ever.
And over the past two weeks, a few "reasons" have surfaced that have fallen mostly under the radar. These, I believe, portend a higher Gold Price. In fact, it is catalysts like these that could end up in our children's history books that, in retrospect, were obvious to see...
#1. China is Buying Gold
China has begun investing the SPDR Gold ETF, the trust-fund proxy for gold exposure. Their sovereign wealth fund, China Investment Corporation, recently invested $155 million in the ETF. The amount represents only 0.05% of the sovereign funds' $300 billion, meaning there's a lot more where that came from.
Those mainstream lemmings who predicted China was done Buying Gold now have to deal with the reality that this move more likely signals they are closer to the beginning – and not the end – of a long-term strategy to diversify into gold.
#2. India is About to
The Prime Minister's Office in India is creating a stream-lined process so that the country's state-owned corporations can "aggressively pursue the acquisition of strategic mineral resources."
The Indian government, normally known for thick-layered bureaucracy, has created a centralized body that will have "rapid strategic and decision making powers." This is telling, both from the perspective that they see some urgency to the matter, and that the acquisition targets are minerals.
Given the country's historic propensity to own gold, it's not a stretch to think the yellow metal will be high on the list of "strategic investments". Recall their government purchased almost half the IMF gold for sale last year in one fell swoop.
The upshot? Don't be surprised to soon hear of India following China's lead of buying precious metal companies and resources.
#3. "Iran is Now a Nuclear State"
So declared President Ahmadinejad last week. The Islamic republic has produced its first batch of high-level enriched uranium, which they claim is solely for electricity purposes but can also be used to create material for atomic weapons if enriched to 90%. In response, the US imposed new sanctions, and the United Nations is considering adding more of its own sanctions, too.
The West recently proposed that Iran export its uranium for enrichment and then have it returned as fuel rods for a reactor. Iran demanded changes to that plan, which were rejected, so claimed they had "no choice" but to start enriching to higher levels on their own. "God willing," declared Ahmadinejad, "daily production will be tripled."
I'm sure this will all just blow over, right?
#4. The US Government Must Inflate
Here's another reason we think that sooner or later inflation trumps deflation: By 2020, government economists project that entitlement benefits (Social Security, Medicare, etc.), along with interest payments on the national debt, will devour 80% of all federal revenues.
This assumes entitlement benefits don't grow, which, of course, they will. The overall national debt, meanwhile, will rise to 100% of GDP within a few years, an alarming level by any measure. Even Moody's warned that our credit status could lose its triple-A rating if the nation's finances don't improve, an unheard-of prospect just a few years ago.
So, we're abruptly fleeing our debt-adding habits, right? As you probably heard last month, Obama signed legislation that raised the cap on government debt from $12.4 trillion – already close to being breached – to $14.3 trillion to permit more borrowing. As Doug Casey has pointed out numerous times, this is the exact opposite of what the government should be doing and will have serious inflationary ramifications.
There's only one way out: devalue the Dollar to reduce the debt burden. And the direct result of that is a rising Gold Price for US investors. We may very well see another round of deflation, but the endgame is inflation.
What I would point out is that any one of these reasons would be sufficient for wanting to put some gold in your portfolio. It's the cumulative effect that's potentially scary, one that argues we should be overweight precious metals at this point in history. The reasons are numerous and, in my opinion, overwhelming.
Physical Gold Bullion and select Gold Mining investments should be a cornerstone in everyone's portfolio, we believe.
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