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That’s just one reason that even during this crisis, buyers of Treasury securities (other countries, large hedge funds, etc) remain strongly interested in purchasing US bonds and Treasuries. These buyers could just as easily buy gold instead. They are not.”

My take: This is a good observation but I’ll try and expand on it some. First I would say that individuals are buying gold in droves via the ETFs, worldwide yet financial advisors still don’t recommend gold as part of a diversified portfolio and it’s not even mentioned but in passing in our CFP study books. I’ve written on this a few times and have had CFPs who were bashing gold, agree with me in private emails.

While there are many hedge funds that do buy gold, many park money in treasuries waiting for the next opportunity. The most notable hedge funds doing the purchases of gold are John Paulson, whose fund made 20 billion betting against the housing and financial markets, and George Soros whose fund bought over $600 million of the ETF, GLD as reported in their quarterly recently (Soros has since said gold was in a bubble, but I showed in an article on him that this is how he acquires assets at a lower price…he’s no fool, ha).

While there are some Central Banks buying gold (India, Russia and some smaller nations), and China bought a little, China can’t show it’s hand too much for fear of a run on the dollar. Remember, the YUAN is tied to the dollar (an unfair advantage to them and a different discussion).

So what is China doing to hedge themselves? While China is now the worlds largest gold producer, they’re also contemplating
buying up foreign mines.

Granted, during the last financial crisis, the world did in fact turn to treasuries and the dollar bounced higher, I’ll give you that. But from an economic perspective, including analysis of GDP, Debt and Deficits, potential health care for all, housing subsidies and Fannie and Freddie funding, cash for clunkers, trillion a year for fighting two wars, bombing Pakistan and potential of war with Iran, somethings got to give. The arrogance of congress in thinking their spending ways without consequence to the purchasing power of the dollar is appalling.

All I ask for is a little insurance in gold, not to load up the boat. 10% – 20% is my recommendation. But one must have a plan with that insurance. Today’s world is not tomorrows.

One can profit from this beyond insurance too, both up and down and in other currencies. That’s why I like the ETFs just as you do Ron.