Reasons for Buying Gold Escalate

We have posted 2 articles (by others) this morning.  First is an article by arguably one of the most respected macro economic thinkers, Jim Rickards (via The Daily Reckoning) and secondly is the always anticipated quarterly Tocqueville Gold Strategy Investor Letter for Q3 of this year.  Tocqueville tend to concentrate on gold through equities where we think a physical metal allocation removes all counterparty (management & broader market) risk.

Both are nice succinct reads but if you are in a hurry this summarises their reasoning behind buying gold (and silver of course) now:

  1. What we saw in September in markets is merely the beginning of the erosion of financial markets confidence that will drive money into gold.  That modern high frequency trading through ‘synthetic’ (we often use the term ‘paper’) trades in gold sniffs change before the pack, the same reason for declines since 2011 could see significant gains soon.  The markets have enjoyed the splurge into risk on free money.  They are likely about to discover the flaws in that strategy and head to safe investments like gold as BofA predicted earlier this week.
  2. Lack of investment in new discoveries and declining mine life will see a reduction in mine supply of gold.  Recall our article here on same.
  3. The shift from the weak speculative (paper) hands of the west to the strong long term holders of physical in the east is playing out right now in stress on supply for the paper traders.
  4. Gold responds to real interest rates – i.e. headline interest rates less inflation (given its lack of yield and opportunity cost).  Jim argues this is heading down and ads further weight to a turn in the price.
  5. The USD has been at its highest level in 6 years but is currently under pressure again as the penny drops about the Feds intentions.  A falling USD historically is positive for gold.  Jim makes an important point about which measure of USD to use though.
  6. Central banks are, and need to continue to be, buyers of gold.  This is adding to the current situation of demand outstripping mine supply as touched on in 3. above.

These are only 6 reasons and we discuss many more as you know.  The articles come at things from slightly different angles and it’s always interesting to compare thoughts from experts.