<Eventually, the situtation will turn bullish for gold, but with mine production near records levels and the possibility of a recession looming (reduced demand), I personally still can not make the bull case.>
Why are you looking at Gold solely as a commodity? Historically speaking, Gold has been the prize investment during periods of deflation. This deflationary process has already started and what is primarily holding gold back here is the absolute faith of market participants that the Fed will save the US economy through massive pumping of the money supply and radical easing of monetary policy.
What I see is a tremendous amount of debt on the part of the Average American which will prevent him from spending the way he did during the bull market for quite some time. Greenspan was too late in changing monetary policy and the economic cancer called deflation has already begun. The layoffs have just begun and the chances of Greenspan being successful in reinflating grow slimmer each passing day.
Cash is King in an economic downturn. That is the commodity which is conspicuosly absent, along with dwindling consumer confidence, that monetary policy is powerless here to address. Once the debt piles up to astronomic proportions, even reducing rates to Zero won't help. That is the lesson from Japan in the 90's.
As always, Gold is waiting in the wings, as the investment of last resort. That last resort will become a reality sometime this year. Game, set, match point, is coming in 2001. |
