America’s Gold Rush Circa 2011

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Ounce by ounce its the best metal around,has been there for centuries and throughout history. Mankind’s love for this yellow metal is well documented in history. The solid feel of power and security it imbibes in mortals is unparallelled with any other tangible asset of its class. Gold bricks, gold coins, gold jewelry, and gold tooth, you name it, it has found its way into the deep security needs of human kind.

The price of gold in United states has been on remarkable run-off lately. Take a look at the Gold ETF along side here in this chart. Its has climbed from 145 to 1742 in one month. That represents a 300 point climb in 30 days and an ounce for ounce that is the best bounce, nothing compares to it. While the US economy tethers on near bankruptcy, a debt crisis that ended in a credit down grade for the US and the total insecurity that it spawned and what have you got here? A strong bull market in Gold.

At the same time stocks are having a hard time moving higher. The market hasn’t done a whole lot for investors at all. So why does Gold keeps going up? It provides a flight to safety and self assurance in turbulent times to most people. With President Obama at the helm, a poor job market and a lackluster economic growth, stocks have lost their bullish run, stock markets are gyrating lately unable to carve a path higher. In Europe and all that instability in European markets and debt issues are nerve wrecking to the investors worldwide.

Take a look at the historical chart of Gold here. In 2007 Gold was selling for $740 an ounce. A year later it goes up to $1000 and this year it picked up pace at astounding pace closing this week at $1742 an ounce. If you just bought an ounce you four years ago, you have more than doubled your investment.

According to Jim McDonald Chief Investment strategist at Northern trust “Gold is an effective hedge in a world where there is too much debt and uncertainty,”. Banks around the world are hedging bets and buying Gold. China and India have been accumulating hordes of Gold in their vaults. The ancient custom of everything in Gold still works in some parts of economies and some parts of the world.

However one should be careful when investing in Gold. Unlike a stock or bond gold does not have an intrinsic value, its does not pays dividends and interest to the holders, and is not as liquid as selling the stocks in open market, its basically a speculative instrument and a device for hedging against inflation and other market risks. The price of Gold can climb rapidly, only to be sold off in a rapid succession. The price can come down hard trapping the buyers in an illiquid investment that is hard to get rid of easily at some point. Gold prices usually go up in turbulent times and they come down hard in prosperous times, and that is the inherent risk of owning Gold.

Unless the US economy starts growing and jobs returns, the chart on Gold is bound to stay bullish for sometime, as buyers will be speculating higher prices. If the economy starts stabilizing, these Gold traders will sell off and that will crash the Gold Bubble and bring down the prices in precious metals and the whole sector. Caution is advised when trading commodities, because of the volatile nature of trading, and gold is no exception to that rule.

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