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.

As I type this, the Dollar Index is down a bit and “weakness in the U.S. Dollar” price of gold is up $1.64. However, due to predominant selling, gold is down $10.05 giving a total fall in the price of gold of $8.4o.

The trend is sell as you can see. I haven’t had time to research the reasoning yet, but I did glance somewhere that it’s options expiration.

Right now, there’s really not of “seen” inflation out there except for those things that the government has their hands in (school tuition, health care). You’re right about the build up of government spending (deficits added to current debt) and that is inflationary. But there’s also credit contraction occurring. In a sense, we’re experiencing deflation and stealth inflation (a reason many own physical gold).

Remember in 2008, the stock market and gold both got whacked. The gold mining stocks got hit especially hard. Yet gold finished the year positive.

I read
daily to try and keep up with the deflation outlook and weigh what he says against the folks at
Lew Rockwell who take more the inflation side of the coin. But I read much more than that…the more opinions, the better my understanding.

I see the arguments as a hedge against inflation, which many are saying will eventually hit. But what concerns me is the fact that everyone is saying it driving up the price of gold too high. It may be a good hedge but if its already overpriced then you are hedging inflation with an inflated item, right?

And yeah, I do get it — gold only has the value that we assign to it, just like paper currencies. I just don’t personally see 7 billion people going back to using that shiny rock as a medium of exchange no matter how devalued our US currency becomes. Just a personal opinion though. I wouldn’t be surprised to see an Elliott Extension of a couple of years or so when some gold pessimism creeps back in. Remember that just a few years ago, everyone was touting real estate …

And for the record — virtually ALL comments get through, even if they disagree with me (just keep them civil and something my children or mother wouldn’t get offended by!). Your comments are welcomed and encouraged at any time.

The practicality of gold just isn’t there. Can you imagine going to Wal Mart and trying to pay in gold? Do you really think the US will start minting gold coins again? Could we really afford to? Hardly.

The US dollar is the world’s currency and the Chinese and others are too heavily invested to switch over to gold. There just isn’t enough of it.