Bull Market in Gold, Bear Market in Money

The US government can't even get its printing presses working right...!

HOW CAN IT NOT be good news that gold and Silver Prices are making new highs? asks Dan Denning in his Daily Reckoning Australia. 

Spot Gold made an intra-day high at $1427 per ounce on Tuesday. But it’s also making all-time highs in Pounds Sterling and the Euro, and multi-year highs in Japanese Yen. So it's pretty clear. Paper money is in a bear market.

It gets worse, too...because turns out the US government can’t even print money correctly. More than a billion dollars worth of new $100 bills (the Ben Franklins) have had to be locked up in a vault in Ft. Worth Texas, as the bills are so high tech, the printers printing them couldn’t handle all the tricks. Ten percent of the entire $100 billion supply was corrupted. (Or 100%...depending on what you think of paper money.)

Of course, there can be fraud in precious metals too. There was a big kerfuffle earlier this year when a rumor circulated on the internet that the United States government sold gold-plated tungsten bars to foreign central banks in the 1990s. Gold and tungsten have the same specific gravity. If you put them both in a container of water, they’ll displace the same amount of water. And because they have about the same density, a gold-plated tungsten bar looks and feels like a gold-plated gold bar. Or so the rumor runs.

Counterfeiting Federal Reserve notes is a lot easier. Or least it used to be. But here is the question: is gold the new oil? Crude oil zoomed past a falling S&P in the first quarter of 2008. Oil futures and hard assets became the “go to” investments as the market fell. But oil prices (which hit hard at the gas pump in the real economy) peaked out about one quarter later and then crashed. Fast forward to today and Gold Bullion since March of 2009 – roundabout when the great Bernanke reflation (and China credit boom) began lifting stocks. Gold is now set to cross the S&P, too.

So the question we’re asking is simple: has gold become the default hard asset to flee to when investors give up on stocks?

The answer to the question will tell you if gold’s move higher is driven by speculators or by something else. What’s “something else?” Well, gold is money. Oil is not. That’s a key difference between the two commodities.

Ministers are meeting in Europe meantime to decide how to expand Europe’s bailout fund from €750 billion to something much larger. The Germans are against it. But given the debt problems in Spain, Portugal and Italy, everyone else seems to be for it. It’s an impasse. The Euro is twisting in the wind. That’s another plus for Gold Investing. And while the US dollar index actually moved up yesterday (it measures the Dollar’s strength or weakness against a basket of currencies), gold continued making new highs against all paper money.

Gold Prices rising even as the US Dollar gains ground means you have a strong bull market. So why so worried?

Because soaring commodity prices and pie-in-the-sky optimism (a billion tonnes of Pilbara ore to China, for instance) are the same indicators you saw in 2008 just before the market rolled over and fell. When commodity investments become momentum plays instead of contrarian plays (where you have to hold your nose and buy), then you should be aware of the danger in the market.

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