Gold Moves in a Mysterious Way—Maybe Not!

Source: Mineweb, Lawrence Williams (7/27/09)

"It is in recessions where the roots of serious wealth creation are formed."

Fundamentals are not good, the season is not one where gold is known to perform well. Some feel the financial crisis is behind us reducing the safe haven perception of gold, yet the gold market continues to show strength. It is off its peaks, but every time it slips back toward $900, but so far this summer doldrums season it has picked up again to settle around the $950 level. Why?

One suspects that the truth behind this is that savvy investors, and those with huge amounts of wealth to protect, are still exceedingly nervous about the pace of the recovery going forward. They are still looking to gold as an insurance policy, while others, some with substantial investments, believe the current financial crisis has a way to go yet and the recovery could turn around at any time and bring markets crashing down again.

Some sectors are justifiably doing better than others—notably commodities; but countries like the U.S. have more limited benefits from this sector as mining activity has been largely forced overseas. It is China, and to a lesser extent India, which have been driving the commodity markets. As long as China can sustain its internal infrastructure development program, global commodity markets can remain healthy and at least one sector of the economy may remain relatively healthy.

The crash may have been overdone in some sectors—commodities stands out as the leading example. And the clever investor will always benefit. It is in recessions where the roots of serious wealth creation are formed. Those who invested in select commodities in October and November last year will have seen their wealth increasing by several hundreds of percent in a few short months.

From time immemorial gold has proven itself as a store of wealth and likely will continue to do so. People trust gold more than they trust governments. Gold's overall strength throughout the financial crisis, despite its dubious fundamentals, bears this out. It may not see the huge falls and rises seen in other sectors, but as a wealth preserver over the years it remains among the best.

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