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Variety of Factors Push Gold Up, Down and Sideways in 2012

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Thursday, 31 May 2012 02:25 PM Current | Bio | Archive

Gold is down because of a variety of factors so far this year:

• a strong U.S. dollar to the euro,

• a weak Indian rupee and new import taxes on Indian gold,

• shorting or selling of gold ETFs on Wall Street,

• attacks on gold by Warren Buffett,

• and a decline in the most widely-watched commodity, crude oil, leading all commodities down.

Positive factors keeping gold above $1,500 include:

• fear over the breakup of Europe and the euro,

• central-bank gold buying,

• low interest rates, giving gold a “level playing field,”

• slow growth in newly-mined gold,

• new buying on dips from “big-name buyers,” 

• and rising demand in China.

We still believe gold will close 2012 on a positive note, for the 12th straight year, and it could reach $2012 if gold suddenly goes on steroids.

Some possible “game-changers” include:

• more states and nations installing gold-backed coins or bills,

• an outbreak of war in rogue nuclear powers, like Iran or North Korea,

• widespread printing of new fiat money to fight the coming global recession,

• fear of U.S. debt, particularly if Obama is re-elected,

• or another “sneak” terrorist attack on America.

Is Buffett Anti-Gold? That Depends on Which Buffett You Ask

The financial news channels were abuzz about the disparaging comments Warren Buffett made about gold. Buffett said gold has limited industrial demand and “will remain lifeless forever.”

His partner, Charlie Munger, said, “Gold is a great thing to sew onto your garments if you’re a Jewish family in Vienna in 1939, but civilized people don’t buy gold, they invest in productive businesses.”

In 2010, Munger was even more insulting: “I don’t see how you become rational hoarding gold; even if it works, you’re a jerk.”

Perhaps Buffett and Munger are tired of people pointing to the superior performance this century of gold and silver over their stock, Berkshire Hathaway. Buffett’s parents were more respectful toward gold. Buffett’s father, Congressman Howard Buffett, was the Ron Paul of his day. He wrote an essay in support of a gold standard, called “Human Freedom Rests on Gold Redeemable Money.”

While the mainstream press heralds Warren Buffett’s dismissive words about gold, they don’t say much of anything about what another famous and super-rich guy, George Soros, is doing with his money. The gold press must go to the SEC filings for this information, since the mainstream press did not herald the news of Soros and others buying large quantities of gold.

Swiss Parliament Ponders Issuing “Gold Franc” Currency

Switzerland is the most gold-friendly nation on earth. Bloomberg reported last week that Switzerland’s Parliament is now considering the launch of a new currency which would be directly linked to gold, a gold Swiss franc with a face value of five Swiss francs (now valued at about $5.25).

While the paper Swiss franc would remain the official currency of the country, the gold-backed franc would also circulate. The gold franc initiative is part of the “Healthy Currency” campaign being promoted by Switzerland’s biggest political party, the conservative Swiss People’s Party, as a way to protect the Swiss franc from currency debasement.

The measure reflects the Swiss people’s concern about the eurozone turmoil and impending global re-meltdown as well as fears of inflation. Will other countries follow Switzerland’s lead?

How High Can Gold Go — $3,000 or Higher?

According to a World Gold Council report, gold miners need gold prices to reach $3,000 over the next five years for them to remain profitable. The figure varies according to specific mining properties, but the average cost of getting an ounce out of the ground now is $1,300, with break-even costs rising steeply.

Many nations are expropriating profits or properties, raising the risk level. This $3,000 is a self-fulfilling prophecy, because mines will probably close if gold doesn’t rise by about $300 per year over the next five years. If those mines close, supplies dry up, driving gold prices up.

71% of Central Bankers are Now More Favorable to Gold than Currencies

Central banks are back in the market for gold. GoldCore commented on this trend with some dramatic observations: “Central banks are expanding reserves due to concerns about the dollar, euro, sterling and all fiat currencies. There is an increasing realization amongst central bankers that gold is a less risky alternative to most paper currencies and a recent survey showed that the majority of central bank reserves managers were favorable towards gold. Signifying the mood of caution among the world’s central bankers, 71% of those polled said gold was a more attractive investment than it had been at the start of last year.”

About the Author: Mike Fuljenz

Mike Fuljenz is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of the NLG award winning Michael Fuljenz Metals Market Weekly Report.  Discover more by Clicking Here Now.



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2012-25-31
Thursday, 31 May 2012 02:25 PM
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