When will gold take off?
Because the Fed continues to pour money in to the economy, it’s difficult to say for certain when Gold will make a dramatic move. The historical record indicates that a surge in money growth has its peak effect on economic activity about 9 to 18 months later. Add another 12 months or so for the peak effect on consumer price inflation.
In other words, the Federal Reserve is always driving with a loose steering wheel. Most of the experience behind those numbers is with relatively tame ups and downs in the business cycle – not the kind of financial violence we’ve been seeing over the last several years – which adds another variable. And on top of that, the numbers are about peak effect, not initial effect.
So while pinpointing the exact timing is difficult, what we do know is that there are clear and unavoidable consequences to wildly energetic money creation, including, sooner or later, rampant price inflation.
Are there signals? The primary sign won’t be inflows to ETFs (although they are indicators), or jewelry sales (the ‘70s bull market had nothing to do with bracelets), or even dramatic increases in the sale of physical bullion (we had that in ‘08 and Gold was up 5.5% – hardly meteoric). No, the payday rise in gold will occur when there is a significant shift in the psychology of the general public.
And that shift is already starting to appear: According to the World Gold Council, demand for gold was at a ten-year high in 2010 – despite a 40% increase in price between 2008 and 2010. Demand is such that the U.S. Mint frequently suspends sales of the more popular coins due to overwhelming demand.
Institutional investors are starting to enter the gold market as well. The University of Texas endowment fund (next to Harvard’s, the second largest in the country) recently took possession of a billion dollars’ worth of physical gold. And gold and gold-denominated investments are the biggest positions of the $5 billion hedge fund, Greenlight Capital.
Before the gold rocket takes off, let’s look at the three best ways to invest in gold so you’re positioned ahead of the crowd. (Author is the Editor of Big Gold)
Courtesy: Casey Research
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