Sunday, January 25, 2009

US Global Investors: Rosenberg - the case for gold

“Gold was, of course, one of the investment world’s few bright spots in 2008, and after a slow start in 2009, it began a rally that climbed above $900 an ounce on Friday. This is gold’s highest price since early October.

“David Rosenberg at Merrill Lynch sent out a short but useful research note Friday titled ‘The Case for Gold’ that explains that gold’s value is enhanced by declining bullion supply and increasing money supply.

“‘It’s the only currency not going up in supply. Pretty simple. South African gold output declined 14% last year in the steepest decline since 1901. US production was down 2%. The leading producer in terms of growth last year was China at +3% (and global central bank selling activity dropped 42% in 2008 to 279+ tons, the lowest since 1996).

“‘Meanwhile, money supply is up more than 10% YoY in the USA (M2); +16% in Australia (M3); almost 11% in Germany (M2); 18% in the UK (M2); almost 9% in Italy (M2); 13% in Canada (M2); 14% in Korea (M2); 18% in India (M2); 12% in Singapore; and 18% in China (M2).

“‘Outside of gold, the only country where money is not being poured into the financial system as if it was water from the tap is Japan, where trends in the monetary aggregates are flat-to-negative. Be that as it may, and in view of all the problems in the US banking sector, we think the dollar is unlikely to lose its reserve currency status any time soon … Confidence in the ability of European governments to service their sovereign debt is being called into question in the debt markets (‘in the land of the blind …’ ).’”

Source: US Global Investors - Weekly Investor Alert, January 23, 2009.

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