“Is Gold money?”

Congressman Paul supposedly posed the question to Ben Bernanke in the US Congress last week about whether "Gold = money:?" "NO" replied Mr. Bernanke, reportedly.  At the same time, he advised that he would be happy to print money for the third round of QE if financial markets need it, - or the economy needs it? Who needs it exactly? Banks? You and me?

Gold since early July 2011
Of course his (BB's) answer is CORRECT.  Gold is not money, because money is just a nominal means to pay for the real - or unreal - things we want.  By printing more, we are diluting its value in real terms, while gold has intrinsic value - for as long as humans fancy it.  And fancy they do, big time.

Last week, in a huge move from under $1490, gold prices raced to new all-time USD highs of  $1593. In a subsequent pullback last Friday, prices then 'successfully' retested the previous high of 1577/1581 (May 2011) and may now well be on their way past the 1600s range.

Normally, such moves are accompanied by a falling USD, but not this time as the next chart shows.

EUR suffers as Greece default looms
What exactly does this imply?  Is it a question of troubling hangups affecting the Euro investors over the struggle to limit the fallout over Greece's debt crisis, fear of contagion, etc? Or -is it connected to the threatened impact of a QE3? Is it really a move to safety?  Or a speculative one?
 
Gold prices rise by +7% in 9 trading days!
Considering that this latest impulsive leg in the longstanding gold rally started in early July and prices having successfully defended the previous high in May, it is hardly the action of cautious investors. These are bold steps and signs of "things to come"! I could well imagine that as soon as these particular gold bugs are satisfied with prices above 1600 - and having 'banked the profits'- they will turn on equities. I say, "these particular gold bugs..." because I - as most other observers - did not see the rally coming - so early! Yes, for the month of August the gold cycle looked rather positive, but early July was supposed to be a softer period. It is also worth noting that Silver, which had its peak back in MAY 2011 only to fall 30% (!) after the parabolic rally, does not accompany gold in this latest move. So, my theory is that we are seeing a replay in gold of what happened in silver earlier, a kind of catch up play, - "catch me if you can". I certainly missed out on.

But I think that is all there is to it, - no sign of 'cold feet' because of European handicaps or the ideological strive in the US  government.  Just a case of making money when the opportunity beckons.  This is a warning sign for those who always want to relate stock market moves to fundamental  or economic events (and there are plenty worrisome probabilities to indulge in), disregarding the fact that there are people who have both the money and insight to make their money work, any which way.  Sounds frivolous? I apologise...  The next equity rally will either prove  - or, if the markets succumb to more selling pressure in coming days, - disprove my theory.

Happy investing!

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