Buy Gold on Dips!

April 1, 2009 Inflation, Physical Gold, Politics No Comments

As the world focuses on the G-20, it is important to remember the big picture and buy gold on the dips. Buy gold coins and bullion, especially if the G-20 results drive the price down. These will be short term knee jerk reactions that will not alter gold’s long term prospects.

Everything awaits on the momentous words from on high at the G-20 meeting, so today’s action should be relatively subdued until something comes out of the meeting later on in the week. The DOW is up 70 at 7,679, the NAS up 11 at 1,539, the dollar is up .14 (.18%) at 85.72 and gold is trading up $5.20 at $923.70.

The big deal in the news is how the G-20′s discussion of dollar’s status as the global reserve currency will turn out. I expect that the discussion will be a lot of bluster with nothing decided other than to table it for discussion in the future. There has been a lot of talk about this meeting and whether Nicolas Sarkozy of France would walk out if he didn’t get his way in the talks. In a Europe 1 radio interview on Wednesday, Sarkozy said,

“I will not associate myself with a summit that would end with a communique made of false compromises that would not tackle the issues that concern us.”

Sarkozy wants tough financial regulations and less emphasis on stimulus spending. Something tells me that by the time the G-20 meeting is over, all will be well and a unified front will be presented. Just a hunch, but what the heck!

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The discussion of the proposed sale of 403 tons of gold by the International Monetary Fund is of a little more importance. The IMF has said that it will sell the gold without disturbing the markets, because it needs the cash in order to impoverish more nations. Oops, I added the “impoverish” part. What the IMF actually said was, it planned to sell 403 tons of gold in order to “diversify it’s revenue and strengthen it’s balance sheet”. How this sale goes forward will be important to watch because if they dump it quickly it could send gold down sharply in the short term.

In another Wednesday announcement, the European Central Bank announced it had completed a sale of 35.5 tons of gold. It seems that while central banks continuously trash gold, they are always taking profits on gold because it is the only thing in their portfolios that is making any profits. I wish that the announcements would include who is buying gold, because that would tell way more about the market than who is selling gold.

In a normal year for gold, you might “sell in may and go away” and come back into the market in September. Summer holidays would be over and jewelery manufacturers would come back to the market to buy gold for the holidays, the wedding season in India and later for Valentines day. That cycle no longer applies as jewelery purchases have literally ground to a halt. The Financial crisis has spawned a new buyer that has replaced the traditional jewelery buyer. The new buyer is an investor in gold as a safe haven from the monetary crisis. Some are buying gold to take advantage of the moves in price in order to profit and some are buy and hold people who are looking to preserve their capital.

With this new demand for gold, the cycle has changed and I doubt that we will see a summer sell off. A lot of this market is fear driven and it will only increase as the dollar and other global currencies are devalued . The population of India has had much more experience with the price of gold than most Westerners and they have become value purchasers. Once they realize that gold is not going to return to the prices of yesterday, they will come back into the market and begin purchasing again. As prices rise, they may purchase less, but purchase they will. Between jewelery purchases, bullion and coin purchases and “quantitative easing”, the out look for gold is very bright.

Be aggressive on dips and increase purchases of gold bullion and gold coins. Do not be herded out of your positions by temporary moves in the price of gold. Be disciplined and wise and buy “when there is blood in the streets”. Gold bullion and gold coins should not be sold on dips, only bought. The prices that we are seeing today will be minuscule as this once in a lifetime economic and political event unfolds!

Till next time, good luck and good trading!