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This Is America's Gold Wake-Up Call

By Matt Badiali, editor, S&A Resource Report
Thursday, May 6, 2010

Americans are finally waking up...
And the story behind this chart is the alarm clock:
The chart shows the amazing all-time high just reached by gold... in terms of the pan-European currency, the euro.
You see, gold has been in a bull market for nine years now. But despite this price strength – and the reasons behind it – the average American has no idea this bull market exists. He has no idea what role gold serves or why anyone would want some, other than to buy the wife a birthday present.
He has no idea that huge money managers – like the central banks of China and India... and legendary fund manager John Paulson (who controls more than $30 billion of assets) – are accumulating huge amounts of gold.
The chart above is why... and it's starting to wake people up. Western governments, including those in Great Britain, Italy, Greece, and the United States, have promised ridiculous benefits programs to their citizens... and they've taken on crushing debt loads. As you read this letter, those debt loads are ripping apart the euro currency union, which began in 1999.
Your typical American can't even find India on a map. He believes the Chinese are evil job-stealers. He doesn't give a hoot what happens in South America. But he does read the newspaper... and he has seen that Europe is in the middle of a giant crisis.
Our typical American has also read that his country is in a similar situation. He sees runaway government spending. And now, with gold approaching a bull-market high in dollar terms... and sitting at a new high in euro terms, he actually sees the result: a flight from paper currencies into real money, gold.
This flight has sent gold from $1,100 an ounce to $1,180 in just the past month. I believe this rise is driven by the mountain of money controlled by central banks and large institutional investors.
India, for example, made major headlines last year when it bought 200 tonnes of gold to diversify its currency reserves. China has more than doubled its gold holdings since 2003. It's also one of the largest owners of the big gold stock fund, GLD. John Paulson, one of the world's biggest and best money managers, owns more than $3 billion of that same fund. He also owns more than $1.5 billion worth of gold miner AngloGold Ashanti... and several other huge mining positions.
Money is flowing into gold because big money managers know they shouldn't park their money in the euro anymore. It's a piece of garbage. And Obama & Co. are promising free lunches to everyone who can help reelect them... This is harmful to the U.S. dollar's long-term value.
Gold is now reasserting itself as a viable place to park wealth. After all, with interest rates so low, you're not missing out on fat interest payments by owning gold, which pays no interest. The Western debt problems will take a long time to play out. I believe they could send gold to $2,000... even $3,000 an ounce in the coming years.
Would I like to buy gold at cheaper levels than $1,180? Sure. If you've been reading DailyWealth for a while, you probably have. But if you haven't yet, don't worry. You still have a huge tailwind at your back.
As shown by the new ALL-TIME high gold just reached versus the euro, the world is finally waking up to the paper currency crisis... and folks will continue to accumulate gold.
Good investing,
Matt Badiali

Further Reading:

Buying bullion isn't nearly as hard as you might think... There are plenty of honest dealers out there who charge a reasonable price. Find a list here: Where to Find the Best Deals in Physical Gold. If you're worried about what to do with it once you own it, get a few choice tips here: What You Need to Know About Storing Physical Gold.

DailyWealth Classic: Back in November 2005, in the very first month of DailyWealth's existence, Steve Sjuggerud told readers: "We're in a bull market in gold... The general uptrend will stay in place for many years. And we're only near the beginning." Flash back to when real estate was the rage... and no one even considered bullion here: $500 Gold? It's a Bargain.

Market Notes


In late March, we noted a strange phenomenon in the pan-European currency, the euro.
Back then, the entire world hated the euro. Debt-crisis stories dominated the financial news. The amount of negative bets against the currency was at an extraordinary high. Since the market always frustrates as many people as possible, these points of maximum pessimism are typically "relieved" by rallies that kick folks out of the trade. But a strange thing happened on the road to relief...
The euro did manage a tiny rally... but it was soon overwhelmed. Despite so many people standing on one side of the boat, the euro could not tip them out. We noted these rare occurrences are signs of EXTREME weakness... often a sign an asset will blow up.
As you can see from today's chart, the euro is doing just that. The currency has plunged in the past month. The world is waking up to the fact that you cannot spend your way out of debt. Are you watching this, Washington D.C.?

The euro is plummeting in value

In The Daily Crux

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