Smart Money Continues to Accumulate Gold


". . .what is patronizingly called the 'dumb money' continues to sell gold as seen in Joe and Jane Public's mad dash to sell their gold jewelry. . ."

Gold fell a further 2.7% Monday (silver nearly 4.8%) as the animal spirits from the G20 communiqué and much vaunted IMF gold sales led to further selling and the shorts continued to press their advantage. Dollar strength and oil weakness also contributed to the sell off Monday.

Interestingly, gold rose strongly overnight in Asia and in Europe Tuesday morning despite continued dollar strength and oil weakness. This may be a technical rebound from oversold levels but the fundamentals remain sound and this will likely see gold remain well supported at these levels.

Gold fell as low as $866/oz Monday, which is just above its important 200 day moving average which is now at $860/oz. Bargain hunters are again buying the correction and there is evidence of physical demand in the Middle East, Asia and India (there is informed speculation that imports to the subcontinent may resume) at these levels. The 200-day moving average may provide support and given the bullish fundamentals it seems unlikely that gold will fall far below the 200-day.

In the current massively uncertain financial and economic climate, the smart money continues to accumulate gold (physical bullion), while what is patronizingly called the "dumb money" continues to sell gold as seen in Joe and Jane Public’s mad dash to sell their gold jewelry at "gold parties" and to pawnbrokers internationally. They clearly believe that gold is at record highs and they are getting good value for their gold. Gold is at record highs nominally – but is only at the nominal price it was in 1980 and if one adjusts for inflation gold is less than half the price it was in 1980. Gold is likely to reach its inflation-adjusted high of over $2,400/oz in the coming years.

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