Tuesday, August 2, 2011

South Korea Buys Gold

There was an announcement today that the central bank of South Korea recently bought more than one billion dollars worth of gold.  This was supposedly the first time in more than a decade that the Bank of Korea has been a buyer of gold.

This news has driven the price up about 2% today.  It is currently over $1,650 per ounce.  This happened on a day in which the dollar was up slightly and the stock market plummeted.  For anyone who has employed my speculation strategy of shorting the stock market and going long on gold and gold stocks, today was a banner day.  Of course, one day does not make a trend.

There are more and more signs that the economy is getting worse.  The trouble in Europe keeps getting worse, or at least it is becoming more well known.  And we know the U.S. is in major trouble when the establishment rating companies are threatening a downgrade of U.S. debt.  There are two things that did well today in the investment world.  Treasuries went up and gold went up.  This tells me that investors are flocking to safety.

I don't think I've ever seen so many bullish signs for gold.  Perhaps this means that there will be a correction (being a contrarian), but any dips in the price should just be a buying opportunity.  As we saw today with South Korea, central banks are buying gold.  This is putting a floor on the price of gold.  We have seen pullbacks, but there has been nothing extreme since 2008.

With all of the trouble in the U.S. economy and around the world, I am a pessimist in the short term.  I see either a major recession/ depression or major price inflation.  Let's just hope that we don't get both at the same time.

The federal government and the Federal Reserve are in a jam.  I really don't think they know what to do. They are Keynesians and they are either deliberately lying to the American people or they don't understand that their own reckless spending and monetary inflation is the cause of all of this.

I am still recommending that you keep at least half or more of your investments in a setup like the permanent portfolio as outlined in Harry Browne's book Fail Safe Investing.  For speculation, I like a combination of gold, gold stocks, and stock market short positions.  I still would not bet against bonds at this point.  We saw what happened today as interest rates went down again.

Tomorrow I will recommend a good gold speculation for your portfolio.

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