Double Dip Recession & Gold
Countless investors fear a double-dip recession. It is quite possible that a second drop of economic activity during 2010 will occur. It is also quite possible that the supportive actions of governments will run out. Even the central banks are not a bottomless pit ( as long at they have enought paper to print more money). The fact is that the central banks are trying to be very cautious in not increasing the rates too soon. However anyone with any sense truly believes strong inflation is on the way. We have seen price increase in basic food stuffs and even shortages. It is almost a perfect storm for inflation. As far as gold is concerned there is a strong potential of increase in prices in the longer term. Trend Followers do not make predictions…they react..but the facts are on the ground.
With the onset of inflation ( if it truly happens) it is only highly likely that gold will further attract more supporters. Some Central banks have been buyers..as well as the populace of China and India. It goes without saying that Gold has and will be a safe haven in times of uncertainty.
Think about it…any currency is really just paper.. what is truly backing any currency other than belief and trust. It does not matter if it is Yen…Euros..or even dollars…it is all paper…not backed by gold or silver.
Again..anything can happen and commodity trading advisors that trend follow do not predict…However there are strong inflationary pressures because of massive amounts of liquidity the central banks have provided as well as the extremely low interest rates provided in order to hope to stimulate spending and the world wide financial system intact. However the fact is that the governments as well as the citizens of many countries are severely in debt. This debt deflation can easily bring on inflation and cause interest rates to rise dramatically.
As far as gold goes, ones timing needs to well tuned as gold will never pay any interest or dividends. However gold and commodities which are real can protect one’s net worth in an inflationary economy. An allocation in trend following can be a very prudent decision in an unknown environment.
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