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To buy gold, one needs to have inflation because the only use of gold as an investment is for store of value. To have inflation, it must be a case where money chases commodities. At this point, it seems this is not the case. Many companies, including banks, now try to sell shares to raise funds and pay their debts. This means that the financial system is lack of liquidity, not otherwise. On the other hand, many firms are eager to sell their products and complain for weak demand. This means that it is commodities that are chasing money, not the opposite. Under such a situation, there is no reason to worry about the inflation.
Bank of China, by listening to WSJ (most likely), increased its gold reserves as an alternative to hold foreign reserves. Such a move will be proved to be deadly wrong under a deflation world. The gold price was down about 5% the last week but it is still hovering around historic high level. The US congress is now considering to sell US gold reserves in order not to print too much money. The printing business will be a great threat to the position of dollar as the only world currency. So printing should be the worst thing the Fed would like to do. Then, who may be the buyer for such a gigantic amount of gold reserve? The answer, perhaps the only one, may be CHINA. Bank of China, be smart. Do not fall in the trap.
Oil, commodities, gold, silver, copper, aluminum etc were very weak this last week. Oil started to have a weak end on Friday. The trendline for oil was definitely broken. The market is trying and trying to deliver a message: Investors are preparing for the deflation rather than inflation world. |
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