Gold Should Stay in the Driver's Seat Despite G20 Spin


". . .this could give gold the boost it may need to see it through another global financial horror story."

The dollar strength coinciding with the G20 meeting will have been helped by Timothy Geithner's continuing affirmation of a strong dollar policy, though how he can reconcile this aim with the administration's quantitative easing policy is hard to understand as the two seem mutually incompatible. But then with most other economies in a similarly parlous state, perhaps the dollar does look stronger against many of its peer currencies—though certainly not against the yuan.

Worryingly for the global economy is that China, which had almost singlehandedly relieved the situation, particularly in the commodities sector, with its 8%+ growth and its stockpiling policies, seems to be beginning to stutter, while its metals stockpiling programs also seems to be ending—or may even have ended. If this support fades there seems little left to build a recovery on. For continued growth, China's export markets need to pick up; it is doubtful if it can continue to forge ahead on domestic stimuli alone.

Gold should still be seen as an investment insurance policy; however, if there is another economic meltdown, it too could suffer as it did last October when many institutions had to sell gold holdings to meet other commitments. But an ever-rising percentage of the smart money may well continue to be invested in the yellow metal—something that has already been largely responsible for the gold's steady price increase over the past few months when fundamentals would seem to suggest the opposite should be happening.

Logic suggests that investment in gold may provide the only security there is against a possible new meltdown, which could occur as soon as next month. October has been a dangerous month for equities in the past and it could prove so yet again. If the dollar continues to be seen as weak, then this could give gold the boost it may need to see it through another global financial horror story.

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