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Don't Be In Such a Rush to Sell Gold Right Now

By Sean Hyman   |   Wednesday, 24 Mar 2010 04:43 PM

Is it time to sell gold?


Here’s what you have to ask yourself: Where do you put the money if you sell gold?

Do you sell gold to place the money in stocks after a huge run-up in share prices, yet with questionable fundamentals?


Do you sell gold to buy U.S. Treasuries?

No. Those bonds are backed by the "full faith" (aka "nothing") of the government.

With U.S. debt heading higher, foreigners are backing off new purchases of Treasuries.

Do you sell gold and put the money into CDs?

That's a loser move because inflation will rise at 3 to 4 percent a year (if you believe what the government tells us about it).

In reality, we know it’s much higher. Inflation will eat up your returns on the CDs and then some.

If you can't put the money into stocks, bonds or CDs, where do you put it?

Other commodities?

Not really, because gold is the king of the commodity complex and it is the one that is the "real currency" in the bunch.

In fact, gold can still rise even if we get a global economic slowdown.

Most commodities need the demand placed on them by a global expansion in order to continue to head upward.

Gold doesn’t need this as much.

It can go up just out of the fear of everything else falling.

What about foreign currencies?

While I'm a huge proponent of trading currencies, I'm not a fan of placing long-term money into the dollar for obvious fundamental flaws like our enormous debt, the huge taxation coming from President Barack Obama … and due to the excessive printing of money from the Federal Reserve/Treasury.

We all know, right now at least, that the euro doesn't make a great alternative to the dollar either with all of the Greek debt problems and Fitch’s downgrade of Portugal.

The euro and the dollar are the two biggest pools of liquidity to which the long-term money would run.

When you take out those, you look to the British pound. They've printed so much money over there that it’s also "watered down" the pound. Britain has many of the same issues that the United States has right now.

All that is left are things like gold and the Australian dollar (which benefits from the rise of gold, being that Australia is a huge miner and exporter of gold) and the New Zealand and Canadian dollars.

There aren’t very many options for the money you’d get from selling gold. For that reason alone, gold won't be sold in a major way.

Before these big institutions sell gold, they have to ask themselves, "Where is a better place to put it?"

And that is their dilemma.

Therefore, gold will hold up overall. And so will currencies with sound fundamentals.

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