Gold Investing: Believe the fundamentals, not the hype

Long time gold skeptic Warren Buffett must be smiling right now as over the first six months of 2012, the precious metals market has taken a beating. However, many gold supports are looking at recent gains in the past few days as a sign that the rare material is prime for a comeback. Mish’s Global Economic Analysis reports on gold’s recent hype along with the 5 reasons why it’s a sound investment despite the hype:

“To get right to the point, three quality sources told me three weeks ago that the gold and silver markets were going to take off in August and I have been pounding the table on such ever since.

It is time for things to happen. As you know by now, I have been jumping up and down for fireworks to happen in August. We shall see. All I can say is that what has been brought to my attention over last three week period from the “best of” sources all points to the same conclusion. It will be nitty gritty time SOON. Perhaps that “soon” is “now” the way gold has traded the past three days.”

There are plenty of reasons to own gold without all the needless hype.

  1. Gold is a nice insurance policy against a currency crisis and I think one is coming. When or what country kicks things off that crisis, I don’t know, but I suspect it is more likely to be the Japan, Italy, or some other country in Europe as opposed to the US.
  2. Gold, contrary to popular myth, is actually a great hedge against deflation in the senior currency (clearly the US dollar).
  3. Physical gold is a currency that is not someone else’s liability and cannot be printed electronically.
  4. Central banks (not just the Fed) have been pouring on the liquidity as the global economy moves from one crisis to another. Odds strongly favor more coordinated central bank liquidity moves, and those liquidity moves tend to benefit gold in the long-haul.
  5. Should the world return to a gold standard with a 100% gold-backed dollar, $1600 an ounce will likely look like an extreme bargain.

Continue to the full article…

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