Is gold bullion becoming the commodity the mainstream media and analysts love to hate?
After all, views of the metal are becoming increasingly bearish. But I believe the most important factor as to why gold bullion is actually attractive at this point is being ignored; gold bullion becomes more valuable as the paper money created by central banks increases in circulation.
How negative have investors become on gold bullion? Since October 2012, hedge funds have cut their holdings of gold bullion by 56%. (Source: Bloomberg, February 15, 2013.) Hence, you can see why some are calling the recent price decline in gold bullion prices the end of the bull market in the metal.
Here’s a long-term chart of gold bullion prices. I see a sideways pattern developing, but I don’t see a bust of the bull market that started 12 years ago in gold bullion.
Chart courtesy of http://www.StockCharts.com
As my loyal readers know, I’m still bullish on gold bullion. My main reason for staying bullish is very simple; so long as the central banks continue to devalue their currencies, I believe the precious metal will shine.
And right now, wherever I look, I see central banks looking to “fight” their strengthening currencies by outright devaluing them. Their attitude of “do whatever it takes to get our exports going” is going to create trouble in the future.
The Federal Reserve alone has printed trillions of dollars to improve the economy. And unfortunately, other central banks are taking the exact same actions—not just major central banks, but the smaller ones too, like the Philippine, Taiwan, Indonesia, South Korea, Colombia, Peru, Costa Rica, and Brazil central banks.
Dear reader, what holds true is that the list of central banks committing to print more money is increasing, and those that were already printing are promising to print more. For example, the central bank of Switzerland, is working hard to keep the value of the Swiss franc lower so its currency doesn’t rise in value against the euro. (The eurozone is its major trading partner.)
As more central banks join in on printing more money, I become more bullish on gold bullion. Looking at the long-term picture, gold bullion is standing at a bright spot. Remember: No investment goes straight up or straight down. And in true bull markets, pullbacks are needed to weed out the speculators.
Thursday, February 21st, 2013
By Michael Lombardi, MBA for Profit Confidential