The Final Hurdle for Gold May Have Been Passed


"The big money is now considering gold a viable investment again."

Bloomberg declares, "Gold Soars to Highest Since July." A Wall Street Journal headline proclaims, "Gold is Flirting with $1,000, Again; 'There's No Sign of the Market Tiring.'" Yesterday gold surged another $30 an ounce surpassing $930. And the mainstream media is getting on board in a big way.

Now, we can debate all day whether this is the time gold runs back to $1,000 and beyond. Or whether this is just another short-lived bounce, which could run out of steam at any moment. Frankly, the exceptional volatility of the gold market has taught me only time will tell.

What I can tell you is that there has recently been a change in gold at least the perception of gold. A dramatic change. One that could set gold and gold stocks on a long march higher. Yet, the mainstream media have completely glossed over it. Let me explain.

You see, gold's a funny thing. It elicits such an emotional response. Gold has had a pretty volatile year. The yellow metal started attracting a lot of attention when it passed its early '80s highs in 2007 and has been up and down since. Lately, it has had more ups than downs. Despite all the recent attention, we're still right back where we were when gold passed $900 over a year ago.

Whether you're an all out "gold bug" who has been waiting a long time for this run, you question the value of gold because it has very little industrial use (ala Warren Buffett), or somewhere in between, you've got to take a look at what has happened to gold in the past few weeks.

But here's the thing, this time around there's interest from some very big money investors. The big money is now considering gold a viable investment again. It's not just the hyperactive, hot money hedge funds batting around gold anymore. Now pension funds, mutual funds, and other institutional investors are betting on gold in a big way. That is the big difference this time around. The big money interest hasn't been there for decades. It looks like that's starting to change quickly.

In the end, it all comes down to whatever the markets believe. Perception is reality. And a lot of money is betting gold will be perceived as more dearly down the road, whether deflation or inflation wins out.

Over the past few months, deflation vs. inflation has been a popular subject of debate. While $60 trillion of wealth has been wiped away in this downturn, central banks are going all out to print enough new money to prevent the inevitable deflationary effects of the losses. And as we've noted before, all speculative bubble-booms end in deflation.

That doesn't matter now. The current theory is gold will win either way. Deflation or inflation, it doesn't matter. Gold win's during inflation because it's a store of value. Gold wins in deflation as central banks debase their currency.

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