The price of gold surpassed its 2009 peak today, hitting an all-time record high of $1,232.50 an ounce. The reason for this is quite simple - Europe is printing nearly $1 Trillion dollar to stem their financial crisis and the markets think all that money will be wasted.
This is leading people to blasphemous conclusions.
“People are in panic mode,” said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. “There is absolute panic over the risk of contagion spreading to other countries in Europe. Yields on Treasuries are so low, people are starting to look to gold as an alternative.”
“This is the beginning of the unraveling of fiat currencies,” said Michael Pento, the chief economist at Delta Global Advisors Inc. in Huntington Beach, California. “Money has to be backed by something. People are beginning to realize that gold is the world’s reserve currency.”
“When the sovereign-debt crisis laps onto our shores, there will be a global realization that gold, not the dollar, is the world’s reserve currency,” Pento of Global Advisors said.
The fact that gold has been rising, not dropping, while the Euro has been crashing, is evidence that gold is now trading like a currency rather than a commodity.
Gold mining stocks also rocketed higher today.
For nearly a decade, the main alternative to the dollar has been the Euro. Before that it was the Pound.
Now both the Pound and Euro are in serious trouble. This can be easily seen by looking at gold prices in Euros.
If should be noted that the crisis in Europe isn't the only reason for gold's 9-year climb. Official gold sales from the world's central banks have dried up, while worldwide gold production has been dropping.
You might think this new high in the price of gold has gold bugs throwing their every dollar at the yellow metal in a mania. You would be wrong.
Consider the average recommended gold market exposure among a subset of gold-market timers tracked by the Hulbert Financial Digest (as measured by the Hulbert Gold Newsletter Sentiment Index, or HGNSI). It currently stands at 46.6%, which means that the average gold timer is still allocating more than half of his gold portfolio to cash.
Today, the gold bugs are surprisingly subdued, and that is a positive omen.
As long as the central banks and governments of the world continue to throw massive amounts of money at their economic problems without making real reforms in the financial system, gold (and silver) will continue to go higher.