Premiums of generic gold, such as MS63 St. Gaudens, continue to be squeezed well below the buy line of 20% over spot gold. If charts are any indicator to make acquisitions then this is an immediate BUY SIGNAL.
With the holidays fast approaching there is little on the calendar that would indicate an improvement of the current malaise until after the New Year. However, the bull market in gold appears to be firmly in tact as all driving factors are not going away. The fact to the matter is that the economic woes due to out of control sovereign debt crisis here and abroad is likely NOT going away.
In fact, as the TV personalities debate how to deal with the crisis. Our leaders will do what the always have done throughout history. Print more money. We now hear multiple Federal Reserve board members advocated further easing setting the stage for QE-3, which is nothing more than an increase of the money supply. Basic economic theory confirms that an increase in the supply of currency will lead to devaluation. One could argue that with sovereign debt spiraling higher and higher that it is impossible to pay without devaluation.
Simple logic confirms, at least in my mind, that it is a race to devalue. The question is, can it be done without causing an eventual spike in inflation? According to many economic theorists NOT associated with a Wall Street firm or a government agency, the answer is NO!
Once the holidays are out of the way the stage will be set for a seasonal rally heading into the New Year. It is quite likely that we will get a significant run in spot gold prices in the first quarter of 2012. Some forecasts have gold exceeding $2000, $2100 and even higher. Goldman Sachs said as late as November 14, “we expect that gold prices will continue to be driven in large measure by the evolution of U.S. real interest rates and with our U.S. economic outlook pointing for continued low levels of U.S. real rates in 2012, we continue to recommend long trading positions in gold,”.
Further, if there is any cause for a financial panic we could reverse the course of the market in short order. I certainly don’t want any type of unforeseen crisis to unfold, but I certainly wouldn’t bet against it by NOT owning a long position in gold. However, fundamentals affirm higher prices are a certainty with or without a crisis.
While most buyers love to expound on the buy low – sell high mentality, few actually practice it. Once the pendulum starts to swing in the other direction, as it most certainly will, the herd mentality will bring forceful buying back to the market, and the current premium lows will evaporate.
So what does one do to take advantage of the current situation? The first thing to do is BUY when premiums for generic gold is squeezed like it is currently. Second, and probably the most important, is buy on the dips. That time is NOW!