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What’s Up with Gold?

08/18/2011

Gold barrelled thru $1,800 an ounce again today, setting yet another new record. 
Gold has long been considered a safe haven during tumultuous times, which these times certainly are.  Gold has long been considered a hedge against inflation (see blog earlier today). 
With the continuing depreciation of the dollar and the downgrade of the U.S. credit, central banks around the world have been adding more gold but fewer dollars to their reserves.  When gold began its run-up two weeks ago, its frantic pace was broken only when the Chicago Mercantile Exchange (CME) raised the margin requirement for gold, meaning buyers could not use as much credit to buy it.  Gold prices quickly fell.
What makes today special is that Chavez of Venezuela has said he will nationalize gold mining in that country to raise cash for his failing government!
I expect the CME will again raise the margin requirement in the near future and that Chavez will try to flood the market in the medium term.  In the long term, the biggest threat to the price of gold is a responsible U.S. government.

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