Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

What the Cyprus Crisis Told Me About Gold Bullion

Thursday, March 21st, 2013
By for Profit Confidential

As the chart below indicates, the price of gold bullion ticked higher when news came that the Cyprus government would vote on a levy for bank deposits. Gold bullion prices moved above $1,600 an ounce on the news.

$GOLD Gold Spot price stock market chart

Chart courtesy of www.StockCharts.com

What this goes to show is that in times of uncertainty, investors still run to gold bullion.

I don’t believe the gold bears realize the fundamentals, which will eventually move gold bullion prices much higher. Some investors are judging the price of gold bullion simply by looking at the wave of optimism hovering in the global economy due to rising equity markets. The view I hear over and over is: “The economy is getting better every day; gold’s glory days are over.”

The reality is that the global economy is still tormented. The eurozone is in a deep recession; China is struggling with high inflation and an economic slowdown; Japan is printing too much money in its effort to stop an export slump and jump-start its economy; and the U.S. economy saw no growth in the fourth quarter of 2012.

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Central banks in the global economy are printing in overdrive, and governments are spending with both hands. The U.S. government alone has incurred a national debt of more than $16.0 trillion. By the end of this year, it will be $17.0 trillion.

Add to all this the fact that the Federal Reserve is creating $85.0 billion a month in new money with no end in sight.

No doubt, the end result of all this paper money printing is going to be higher inflation. The official numbers may not show it yet, but eventually inflation is going to be a major concern.

But what still holds true is that gold bullion still has a shiny future.

Where is gold bullion headed next? From what I can see, the mainstream has become outright bearish on the yellow metal. However, many industry veterans have a different view on gold bullion prices. Here’s what the CEO of Goldcorp Inc. (NYSE/GG), Chuck Jeanne, recently said: “I am not calling for $5,000 gold. By the end of this year we will be higher than the start of the year, and we will hit $2,000 gold in the next two to three years.” (Source: Macdonald, A., “Goldcorp CEO Unfazed by Mining Rough Patch,” Wall Street Journal, March 19, 2013.)

Dear reader, the fundamentals behind gold bullion haven’t changed in 5,000 years, and I doubt they will start to change now. In fact, we have many central banks in the global economy purchasing record amounts of gold bullion. I am as bullish on gold bullion as ever and see the current depressed price of the gold producers as a real opportunity for investors.

(In our just-released research report, Lombardi’s Second Quarter 2013 Gold Forecast Report, you’ll find: our analysis of the U.S. money supply and its implications for gold; our analysis of the current gold supply and demand; analysis of central bank activity in the gold market; our specific price projections for gold bullion; our top-five senior gold stock picks; and our top-five junior gold stock picks, all compete with charts. Click here for more info.)

What He Said:

“Consumer confidence does not change overnight. In the U.S., 70% of GDP [gross domestic product] is based on consumer spending. And in my life, all the recessions I have seen or studied have only come to an end when consumers started spending. With consumer sentiment getting worse, and with the U.S. personal savings rate at near record lows, it may take two or three years for consumers to start spending again.” Michael Lombardi in Profit Confidential, February 25, 2008. By the end of 2008, the rest of the world was realizing the recession would be much longer and deeper than most had realized.

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Michael Lombardi - Economist, Financial AdvisorMichael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Some of the stock recommendations in Michael's various financial newsletters have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland. Follow Michael and the latest from Profit Confidential on Twitter or Add Michael Lombardi to your Google+ circles