Bummed Out Of Gold? Blame Central Banks

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By J Maslow

central bankIt’s really hard to be a gold bug lately. At close to 1,200 dollars per ounce, gold has seen better days. In fact, you might be scratching your head as to where you went wrong. There are a lot of warning signs in the larger American economy and the global economy for that matter. Most equities markets are overbought. There’s just too many stocks that are worth more than the real value. In fact, when you look at the Dow Jones industrial average its valuation is completely out of whack. Its completely unjustified by real economic activity on the ground.

It appears that financial markets are running on fumes and getting high for no reason. Well, the reason is actually quite obvious. The reason is the Bank of Japan and the European Central Bank are engaged in currency devaluation. Sure, they wouldn’t go into record and say that they are actively devaluing their currencies to make their exports more affordable and their debt more manageable. But that is exactly the primary effect of their stimulus programs. Whether you call it quantitative easing or physical stimulus it doesn’t matter. The results are the same. The results are predictable. In fact, so predictable that we can pin the blame on the appreciation of the dollar’s value on these devaluation schemes. These devaluation schemes tend to reward the dollar. This might seem great for American perspective, but it isn’t. A strong dollar makes American exports look unattractive. This weakens American competitiveness. From an investment perspective, however, the strong dollar weakens gold.

You have to understand that investment is all but comparison. You put your money where you can stand to gain a better rate of return. Currently, investors are betting big on the U.S. dollar. Thanks to its comparative strength to devalue currencies like the yen and the euro. This has taken a lot of the shine of gold and as a result, gold continues to get hammered. It’s only a matter of time until people wake up from breathing all these physical stimulus fumes and really see the sad and sorry state of the real economic landscape. At that time gold should explode in value.

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