Lear Capital: 3 Reasons Gold Is Headed Higher

According to the author of the article, the death of the gold bull run has been greatly exaggerated and gives three reasons for why gold will head higher in 2012. These include central banks increasing reserves, the growth of all metals and continued unrest throughout the world.

Posted 1/5/2012 3:25 AM
David Engstrom
NASDAQ

Where is the gold price headed from here? As we wound down 2011, gold prices slipped to multi-week lows. As prices slipped, reports again flooded the airwaves extolling the death of the gold bull market. As the New Year now rolls in, and year-end profit taking concludes, prices are ticking higher along with the price of silver, palladium and platinum. I personally think the death of the gold bull market has been greatly exaggerated. Perhaps you will agree.

First, I don't believe Central Banks of the world have been increasing their stockpiles of gold because they expect the price to go down. Think about it. Those who have the ability to print money and indeed are likely to be called on to do so, are buying gold. Let's face it, even a report that a major bank is considering printing more money can affect the markets. Conversely, so can a report that says more printed money is not an option. Yes, this suggests short term manipulation of the markets is possible. However, that's exactly what it is - short term!

Incidentally, it also makes better news to report from one extreme to the other. I recall, when gold hit the $1900 per ounce level, reports of $5,000 gold made TV headlines. Not two months later, those reports were replaced with reports of $1200 gold ahead. It's always curious to me how, regardless of what the prediction of the day may be, the TV anchors, or their special guests always seem to be able to make sense of it. Let me ask, how many times you have heard in the mainstream media that central banks are buying gold by the hundreds of tonnes. Need I say more?

Secondly, all the metals are moving in unison. It makes no sense that an anticipation of better economic times or a stronger dollar would drive all precious metals prices down. If economic recovery really is in motion, the industrial metals should be moving higher in anticipation of increased industrial activity and demand for those metals. It's one thing to say gold has lost its safe haven status but to the extent that status is lost, it would be because true economic recovery is underway. In that case, industrial metals would separate themselves from gold and rise accordingly. That was not occurring at the end of 2011 and it is not the case as we launch into the new year.

Finally, geopolitical unrest is reaching a new crescendo. Iran is just begging for conflict. If they do not follow through with their threat to close down the Straits, they still flirt with retaliation for their nuclear activity. Either way the world oil supply is held hostage and any disruption in the power base in Iran is sure to bear on the world economy.

I'm often asked, why then has the price of gold dipped to these current lows? You have to admit, gold has had a great run and it is hard to maintain that momentum when all the news points to some kind of recovery. As the saying goes, repeat something often enough and it becomes truth.

So, as I have said numerous times, if you believe there will be no more money printing, that we are in economic recovery, that 2012 will see world peace then don't buy into any story that suggests gold prices will resume their march higher. If you believe the greatest challenges this country has ever seen still lie ahead, equip yourself with the means to protect against failing currencies, inflation and an amount of debt that can never be repaid. Information is key and it costs nothing to visit LearCapital.com for the latest breaking news on gold, silver and the economy.

Gold has always been the hedge against this kind of uncertainty and I doubt 5000 years of history will be wiped out with a few news reports that everything is going to be OK! Frankly, if gold were half the price it is now it would only be for the reason that millions more of my friends and neighbors would have jobs, real estate prices would be in recovery and my kids would not be stuck with the consequences of repaying a debt that looks more and more like it will never be repaid.

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