What the Cyprus Crisis Told Me About Gold Bullion
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.
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.
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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.