Power Shift Toward Gold

February 27, 2009 Inflation, Physical Gold, Politics No Comments

Gold pauses it’s slide as we witness the beginning of a power shift toward gold. Big money is moving into the gold mining sector in an apparent power shift toward gold.

The markets continue to ooze life while gold pauses it’s decent before the weekend. The DOW is down78 at 7,103, the NAS is down 3 at 1,388, the dollar continues to defy gravity, up .29 (.38%) at 88.13 and gold is currently reversing it’s downturn, up $6.60 at $952.10. If gold can maintain or extend these gains through the close it will bode well for next week’s action. The dollar story is nearing a new chapter. If we compare the 52 week high and low it is easy to see that the dollar is at or near it’s upside potential. In the last 52 weeks the dollar hit it’s high of 88.46 on November 21, 2008 and it’s low of 70.69 on March 17, 2008. When you add all of the dollar negatives into the equation, only one aspect, the appearance of the dollar as a safe haven amidst the financial meltdown, is the only positive working in it’s favor. Shortly the dollar will lose that positive, as sentiment changes due to it’s dilution through “quantitative easing”.

picture of amero Power Shift Toward Gold

Is The Amero The Replacement For The Dollar?

The current financial crisis has prompted many to float new ideas for a reserve currency, or currencies, with Vladimir Putin being the latest in his address at Davos this year. You can read more about that in two articles that I have written on Putin’s thoughts on the subject, on this site, buygoldco.com. The global financial system is a mess, partly because everything in the world is valued in dollars. In the past, any mention of an alternative reserve currency was shot down because the system was working. Now it is not, and shortly their will be alternatives to the dollar as the world’s reserve currency.

moz screenshot 2 Power Shift Toward Gold

moz screenshot 1 Power Shift Toward Gold

The most likely scenario would support two or three reserve currencies, simply to avoid the dependence on one. Because the fiat system is being trashed all over the globe, gold will likely be the anchor for the new currencies if, and when the shift is made. With gold as a base percentage of the new currencies, additional components could be added, such as oil and base metals to diversify the currency and immunize it from shocks in one sector alone. These types of reserve currencies would limit a government’s ability to inflate away their bone headed policies and provide the stability that economic growth requires. These changes will be fought, but ultimately, the debacle that we are currently living trough will provide the impetus for “change”.

Within that context, let’s look at gold. The global output of gold has fallen for the last two to three years while the price per ounce has risen. This is rarely mentioned in the coverage of gold in the media. There are many reasons for this reduction in output. The older the deposit, the deeper you have to dig to get it, many companies sold their output forward during tough times and were not able to fully participate in the rise in price and during the stock market’s run to 14,000 plus, financing was hard to get for mining companies as money moved into the bubble. There are more reasons, but these will do for now.

A curious thing has happened during this financial crisis. Investment money is hard, or impossible, to come by in almost all sectors except one. That sector is the gold mining sector. Recently money has been flowing into gold companies of all shapes and sizes. The major producers are getting financing for development, exploration and to take over juniors. The juniors are getting financing to move into production. Money is moving into the gold mining sector.

When big money moves into a sector, things happen. Gold mining companies have seen six $100 million plus financing arrangements completed in the last few months. All this is happening during a time when industrial companies can’t get money at any price.

Recently Peter Munk, the Chairman of Barrick Gold (ABX), the world’s largest gold mining company, was quoted in an interview with Bloomberg:

“I have received an increasing number of calls from wealthy investors looking for ways to buy bullion. While that is positive for the metal market, it is a sad part of a civilized society.

That’s not where you want to be, it’s alarming. Do I personally believe gold will break through $1,000? It’s not a question of if, it’s a question of how soon.”

That is an interesting statement from the head of the world’s largest gold company. He knows what is going on and is concerned that the panic in the global financial system will result in gold becoming a currency. That would be a sea change in how we live our lives. What we need is a slow orderly change rather than an uprooting of the whole system. If the process is orderly, the world will avoid massive pain. Let’s hope it is orderly!

Things can change suddenly, so it is wise to buy gold and gold stocks on the dips. We are rapidly moving into the phase where the highs will be way higher and the lows will be higher. In two years from now, looking back at purchases of gold and gold stocks on the dips here will certainly bring a smile to your face. Do your own due diligence, pick wisely and do not invest money that you will need shortly because this market can fluctuate violently and you must be prepared to ride out any downturns.

Till next time, good luck and good trading!