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Now Is the Time to Buy Gold

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					                            Now Is the Time to Buy Gold


After the continuous market disappointment that followed each non-committal QE3
statement, gold's initial reaction to QE3 has been very positive, boosting the price up
around $200 over the last few weeks.

Although gold is still in its consolidation phase and is firmly supported around $1,520
speculators are beginning to consider when gold prices will break their previous record high
of $1,920. Even with the announcement of QE3 from the US, Charles Evans the President of
the Federal Reserve Bank of Chicago predicts that the purchasing of Treasury and mortgage-
backed securities will still continue on into 2013 in order to bring down the unemployment
rate to 7%. China's industrial production has also dropped below 9% and the Eurozone
industrial production contracted again for the eighth consecutive month in July. With all this
negative economic data being steadily released there seems little doubt that gold is once
again becoming the ultimate safe-haven and hedge against inflation.

As New York state-based gold analyst and commentator Jeff Nichols notes in his latest
commentary "The Fed's newly adopted quantitative easing (QE3), unlike QE1 and QE2 is
open-ended and unlimited. It will continue until there is evidence of healthy employment
market conditions - which could be years away. And, it may include other policy tools that
remain undefined."

However, if inflation is integral to the Feds policy, a rising gold price will be merely
illusionary for the U.S. investor serving only to maintain wealth, not increase it. If the gold
price, say, doubles but rising inflation means everything costs twice as much anyway, there
is no real gain for the gold holder.

Unfortunately China is less than happy to see the dollar declining as indeed so does its huge
dollar reserves. China is therefore thought to be once again building up its gold reserves in
order to secure its future. Obviously it cannot buy large amounts of gold at a fast pace
because this would dramatically affect the market. However, they are thought to be aiming
to bring their gold reserves up to a level that would make them a dominant player in the
marketplace, thus enhancing the position of the Yuan. If this scenario is correct then China is
effectively putting a floor level on gold by buying on dips and if it does announce details of
increased gold holdings in the future this would push gold prices up further. This is however
speculation and at the present the gold price will remain primarily influence by U.S and
European factors.

The dollar declined due to the Fed's easing, which isn't surprising, given the fact that gold
and the greenback are often inversely correlated, and increasing money supply generally
causes the currency to fall in value. What's interesting is that currency decline was what
Richard Nixon sought to avoid when he ended the gold standard in 1971 and announced
that the country would no longer redeem its currency in gold; however more than 40 years
later and dollar then is now only worth 17 cents. This decline in the dollar's value only
strengthens the case of gold as a store of value.

Rising money supply, declining purchasing power and annual deficits are giving the all-clear
to invest in gold.

Many others appear to agree with us, as sentiment has shifted in favour of the metal in
recent days: According to Morgan Stanley's survey of 140 institutional investors in the U.S.,
gold sentiment was at its highest bullish reading since July 2011 and the largest month-over-
month increase during the survey's three-year history.

We may still have several months to go before we see gold retest its previous high from
September last year; however, gold does appear to be on one of its runs again. It has
breached every level of resistance recently and has steadily risen over the last month. When
gold prices take off like this, it usually takes an emergency landing to stop them. Even the
conservative banks are forecasting prices around $2,000 within the next year.

There is however still the barrier of $1,800 to knock through and, at current levels, investor
profit taking is inevitable, which we could see bring down gold prices slightly. Longer term,
any exponential increase in money supply should see an exponential increase in the gold
price, so the sky's the limit!

KK Bullion offers you the opportunity to participate in a rising gold market with gold bullion.
Buy or sell gold bullion, have it delivered securely or we can store your gold bullion for you
in our Vault.

				
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posted:10/6/2012
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