Gold Boom, Dollar Doom?

SEAN BRODRICK, Weiss Research (06/29/2009)
Gold Shortage — It's Here

While gold trades every day on the exchanges, there's already a physical gold shortage—just ask the U.S. Mint, which announced on Monday:
"Production of United States Mint American Eagle Gold Proof and Uncirculated Coins has been temporarily suspended because of unprecedented demand. . . The United States Mint will resume the American Eagle Gold Proof and Uncirculated Coin Programs once sufficient inventories of gold bullion blanks can be acquired to meet market demand for all three American Eagle Gold Coin products."
You want to bet that the Mint is going to suspend sales of its regular American Eagles, as well as the proofs? They did it last year, they'll probably do it again—the Mint simply can't meet the enormous demand.

"A lot of people are watching for when gold dips," says private gold dealer Eric Drawdy. "As soon as it does, they snap it up."

And it's not just well-heeled Wall Streeters buying gold—it's mom-and-pop investors. . .They know that the U.S. dollar is in trouble, as are many paper currencies. And when the dollar buckles, gold prospers.

Investors Accumulate Gold with Both Hands

Total demand for gold in the first quarter rose a whopping 38%, according to figures published by the World Gold Council in its first-quarter Gold Demand Trends report.

Identifiable investment demand for gold, which includes exchange traded funds (ETFs) and bars and coins, was the major source of growth in the quarter, reaching 596 tons. Net retail investment rose 33% year-on-year to 131 tons.

Deflation Could Be Dollar's Deathbed

Now, we're experiencing deflation. . .the deadliest environment for the U.S. dollar. It chokes the economy and turns already huge debts into unserviceable mountains of IOUs. . .And the United States is piling up more debts all the time. . .

Dollar's Last Hurrah Is a Great Set-Up for Precious Metals

The U.S dollar could go higher in the short-term, sending gold and silver lower, but precious metals are probably near an important bottom—and with other forces in their favor, they could soon springboard through overhead resistance.

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