Read entire article before arriving on decision. Do not jump off to sell. Read rationales discussed here..
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I have tracked Gold very closely since 2007. I recommended Clients to buy Gold, when it was trading at $ 700 giving target of $ 2250. My Clients have earned superlative returns in Gold. I had recommended Gold, because there were rational behind it, certainly not because it has eternal value and to store it in safety vault.
I recommended Gold because
I could see that Globally Equity markets are trading at historical high values but far away from reality.
I could see Fundamentals were deteriorating globally notwithstanding markets were scaling newer highs.
World had reached to higher supply built up and demand push should cool down
And when economy crashes and markets tanks
World across Central Banks will pump in trillions of dollars to save the economy
I could see that quantitative easing will not solve problem but will exacerbate it as capital will not flow to intended assets
I could see easy money will drive commodities and metals to the roofs
Biggest of all
I wrote number of times that in time to come, Government will lose trust of the citizens & investors and precious metals will become insurance against Government default
I wrote that excessive printing will lead to higher inflationary environment and higher inflationary expectations and that leads to higher Gold prices ( precious metals)
I wrote that never ever historically, we have seen such a massive printing across the globe.. may it be developed or emerging, east or west, all joined the race of printing to ensure that their economy is least affected in this crisis.
I also presented statistics of money printing vs Gold price.
Every 1 % more currency printing( quantitative easing) in US gives 1 % rise to the Gold’s price
Every 1 % more currency printing( quantitative easing) in Europe gives 0.9 % rise to the Gold’s price
Every 1 % more currency printing( quantitative easing) in India gives 0.7 % rise to the Gold’s price
Gold is still considered as best inflation hedge, insurance against Govt’s default, true money, key currency to hold during war time.
Gold always retains its purchasing power while currency always lose purchasing power
But, nothing goes up forever how true or good it may be….
I believe Gold will hit the wall in 2013.
2012 was the 12th straight up year for Gold. Gold has not seen such a persistent stupendous rise in past century. We have historical evidences which supports rally for straight 10 years or less.
During last rally between 1970-1980, Gold paused after April 1974 to Aug 1976. For more than 2 years and corrected 46 % from $ 189 to $ 104 before final leg up.
Also understand that Gold is trendsetter. We can get the sense of inflation and deflation from Gold’s trend.
Recent development across the world shows restraint in continuing monetary and fiscal easing.
In US, either through higher taxes or through expenditure cuts, Govt will ensure that People are left with less money to spend. US Govt is under tremendous pressure from rating agencies to keep his house in order to retain AAA rating. In short, US will have to ensure that it spends less and save more or/and it spends same but earns more through higher taxes.
Central bank of US released minutes of Dec meeting and many participants argued about the long term effects of continued monetary easing. Somewhere in mindset of policy makers, the fear of long term effects of Quantitative Easing and failure of monetary easing done so far has compelled them to relook at the policy.
Entire Europe is in some or other way exercising austerities. China is trying to cool the growth. Indian Finance Minister also declared to be ready for bitter medicine in 2013. After having expanded balance sheet of Govt and Central bank for last 4 years, time has come to either pause for a while or cut it back to remain healthy and to take care of long term consequences.
As I explained earlier that higher money printing raises Gold prices. Similarly, reduced money printing will reduce Gold prices to similar extend.
Hence, I advise to remain on sidelines until we are clear of policy mess.
Last 3 weeks of closings of Gold has come near $ 1655. Gold’s direction further from this level will be decisive trend setter for Gold and rest of the markets.
As you can observe in attached chart. Gold is forming rectangle along with declining triangle.
I advise to remain sideways until Gold breaks out on either side.
I advise you to Join Plateau-Mountain-Cliff Wealth Enhancement Services to get precise moves of Gold, Indian Equity market, Foreign Equity markets, Currencies, debts and broad economic trends of the world.
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