Is Draghi Bullish On Gold?

It’s fairly good protection against fluctuation of the Dollar and risk diversification, said the President of the European Central Bank (ECB), Mario Draghi, about gold bullion recently at Harvard University. He added, Central banks which had started a program of selling gold a few years ago substantially stopped; by and large they are not selling any longer. Also the experience of some central banks that have liquidated the whole stock about ten years ago was not considered to be terribly successful from a purely money viewpoint. (Source: Central banks are unwise to sell their gold: ECB president Mario Draghi, Mining.com, October 17, 2013.)

At the very core, the President of the ECB reiterated the point I have been trying to make in these pages for some time now: central banks are in dire need of gold bullion because the fiat currency they have created provides them with nothing but uncertainty. Gold bullion, on the other hand, keeps central banks’ reserves in check.

Dear reader, it’s a fact: central banks around the global economy are in a race to devalue their currencies to the bottom. They are printing money and keeping easy monetary policies in place to make sure that their currency value is suppressed. They think this act brings prosperity in the form of export demand. The central banks are wrong.

Our own central bank, the Federal Reserve, is printing $85.0 billion a month to bring economic growth to the U.S. economy. The Federal Reserve has also kept interest rates at artificially low levels for years. But if we take out the strengthening of big banks and the rally in the stock market, we don’t have much left to show for the trillions of dollars in new money being created by the Fed.

Unfortunately, other central banks are doing the very same, and the list is getting longer each day. The ECB has lowered its key interest rate again—a surprise move that brought the value of the euro lower. But the eurozone crisis remains and continues to take its toll.

The Czech National Bank (CNB), the central bank of the Czech Republic, had promised to keep its key interest rate the same, but then decided it needed to intervene even further. The statement from the central bank said, “The CNB will intervene on the foreign exchange market to weaken the koruna so that the exchange rate of the koruna against the euro is close to CZK 27.” (Source: CNB keeps interest rates unchanged, decides on interventions, Czech National Bank, November 7, 2013.)

All this money printing and other easy money policies are bullish for gold bullion prices ahead.

While the press and many financial advisors have become negative on the precious metal these days (largely because prices stopped rising and have come down), I’m sticking to my bullish stand on gold bullion and my belief that the well-managed gold producing companies are presenting tremendous opportunities to investors.

What He Said
Interest rates at a 40-year low: The Fed has made borrowing as easy as possible, resulting in a huge appetite for loans and mortgages. We are nearing a debt crisis. Michael Lombardi in Profit Confidential, April 8, 2004. Michael first started warning about the negative repercussions of then-Fed Governor Greenspan’s low interest rate policy when the Fed first dropped interest rates to one percent in 2004.

Disclaimer: Dear Reader: There is no magic formula to getting rich. Success in investment vehicles with the best prospects for price appreciation can only be achieved through proper and rigorous research and analysis. The opinions in this e-newsletter are just that, opinions of the authors. Information contained herein, while believed to be correct, is not guaranteed as accurate. Warning: Investing often involves high risks and you can lose a lot of money. Please do not invest with money you cannot afford to lose.

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