Gold Could Go Lower, but Will Lead to Buying Opportunity

All assets have been in sell mode. Gold was close to $1,800 last week, but today it is below $1,700 and could go lower.  Tomorrow I will provide a short-term technical outlook for the dollar, gold and silver in my weekly Update.

The main reasons for the sell-off include:

• Profit taking after rally from October lows

• Continued concerns regarding the financial crisis in Europe

• Our dysfunctional political system

• Our deficits and debt crisis

• The potential for another downgrade of our government debt due to the likely failure of the supercommittee and our large national debts and dysfunctional political system

• Institutions and investors have been selling assets to cover margin calls and to raise their cash positions - cash is king.

I believe when this sell-off bottoms, it will be a buying opportunity for the following reasons:

• Instability and uncertainty in the volatile, energy rich Middle East, as well as growing tensions between Israel and Iran.

• The U.S. and some euro zone countries have too much debt, and both will have to print massive amounts of money to help pay down debt.

• European banks have too much sovereign debt on their balance sheets and are undercapitalized. If there is a sovereign debt default, it could lead to serious global liquidity problems as well as a severe global recession, if not a global depression.
  

• Central banks, will continue to buy gold

Below are charts that show central bank gold positions, and the correlation between central bank gold buying and rising gold prices.

The first pane shows that the developed economy central banks have large gold reserves and the emerging economy central banks have smaller gold reserves. I believe the emerging economies will add more aggressively to their gold reserves because they’re losing faith in the Euro, the dollar, and because of their growing dollar and euro reserves.

In the 3^rd quarter of 2010, central banks bought 22.6 tons of gold. Total buying by central banks in the 3^rd quarter in 2011 increased dramatically to 148.4 tons. Total gold buying by central banks for the first three quarter of this year is about 348.7 tons.

One way to lower sovereign debt is to print money. In the U.S. we should see QE 3, and I wouldn’t be surprised to see the European Central Bank also print money. The printing of money leads to the debasement of one’s currency. This should lead to $2,500, to $3,000 gold.

Prices go could to $5,000 if:

• A sovereign debt default, or if a major European bank goes bell up

• Increased sanctions against Iran leads to lower oil supplies higher prices, or if Israel attacks an Iranian nuclear site

Last week in my website Finest Known, I wrote about the failure of MF Global, the second major financial institution to collapse due to the financial crisis in Europe. Click here to read the article. $600 million in customer accounts are missing. In my book the, The New Bull Market in Gold, and in last week’s article I advise to take delivery of your physical gold (the exception is gold investing in retirement accounts where delivery is not available.)

Here is an excerpt from my book, Chapter 8, page 121:

Always take immediate delivery of your gold coins.   NEVER store your gold coins in a dealer’s vault. I’ve seen people lose every penny “trusting” a dealer. Take the time and get a safety deposit box at your bank and take charge of the storage. When buying bullion it’s important to get your gold as quickly as possible. Checks need several days to clear, money orders less, bank wires are immediate, and you can always insist on next day shipment when you send a bank wire.  

Buy gold on pullbacks and take delivery (when not in a retirement account).

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 Thirty-one years ago this month, Ronald Reagan was elected as the 40th President of the United States. His leadership not only brought America to a new level of prosperity, it also caused the downfall of the Soviet Union’s "evil empire‚" and ushered in a new era of peace around the world.

 This month is also the 12th anniversary of the historic opening of the Berlin Wall: the stirring fulfillment of Reagan’s famous challenge, "Mr. Gorbachev, tear down this wall!"

 To commemorate these events, I'm offering two Ronald Reagan half dollar U.S. coins as complimentary bonuses when you renew or extend your GEA subscription for three years.

 These are Kennedy half-dollars, issued by the U.S. Mint in 2004, and colorized in four colors with President Reagan's portrait by the Morgan Mint. They are officially sanctioned by the Ronald Reagan Presidential Foundation.

 These beautiful coins make great Christmas gifts. I'm offering two so you can offer both as gifts, or give one as a gift and place the other into your own collection, in remembrance of one of our greatest Presidents.

These coins sell for $29.95 or more, but (while my supply lasts) you'll get two coins at no extra charge when you renew for three years for $189.

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