Bear Case Against Gold On US Economic Recovery Is Specious Nonsense

The bear case most popular these days goes like this: the US economy is recovering, interest rates are going up so gold will be more expensive to hold and go down in price.

It’s an inconvenient truth then that US GDP managed a whopping 0.1 per cent annualized growth in the first quarter. Rising job claims suggest Friday’s non-farm payrolls number may be another huge miss.

US housing crisis

US housing is also going backwards and not forwards. Only $235 billion worth of home loans were started in the first three months of the year, the lowest figure since 2000.

Commerce Department data showed that sales of new homes unexpectedly slumped by 14.5 per cent in March to the lowest level in eight months, a far higher figure than could be put down to bad weather. That was 384,000 annualized in new home sales. Pre-crisis sales hit 1.4 million!

So if the US economy is not really recovering and the Fed will therefore not be able to allow interest rates to go up and may well soon have to start printing money again then why be bearish on gold?

On the contrary the US is going to become more dependent on money printing than ever to keep the economy from crashing into deflation. Ergo the risk rises that things will go wrong and turn into a hyperinflation, and to hedge that risk what do you buy: gold!

All-time high

Then again what happens when the stock market sells off like it did in January? A clue: gold went up in January. Why would stocks now sell off from all-time highs?

Well the stock market is supposed to be some kind of a mirror of the state of the general economy and rise when it improves and go down when it does not.

Ask yourself is gold at a high or a low and you will know where prices will go.

http://www.arabianmoney.net/