What's Going on With Gold? image

What’s Going on With Gold?

Why savers are going to be big losers

For a while now, gold has bounced between $1,550 and $1,620. Currently, it's sitting at the top of this cycle. The question is, what's gold going to do? Is it going to start back down to the bottom of the cycle? Or is it going to punch through the top and start a new price cycle?

That's the million-dollar question.

Big-time money moving into gold

There's some interesting movement going on in the gold markets. According to The Telegraph, "Out of 26 analysts surveyed by Bloomberg, 14 expected prices to rise this week, with six expecting a fall and six seeing neutral price action. So, this is far from a resounding bullish cheer."

But, The Telegraph reports, some big-time investors are quietly (and significantly) upping their stakes in gold. According to SEC filings, both George Soros and John Paulson increased their investments in SPDR Gold Trust, the world's largest gold exchange traded fund (ETF) last week.

Soros increased his stake by 564,850 shares and Paulson increased his stake by 4.53 million shares. This equaled out to an $88 million dollar investment in gold by Soros and a $700 million investment in gold by Paulson.

Why the rich are investing in gold

Why are these successful investors upping their stakes in gold? There are two theories.

  1. These investors, and others like them, are preparing to hedge against excepted inflation from the potential quantitative easing by the Fed, Q3. Quantitative easing is basically the Fed printing money, which devalues the dollar and spurs inflation. Those left holding dollars lose while other assets rise in relative price. This is a big bet. If there is no Q3, these investors could stand to lose.
  2. Or, they could be anticipating a big gold run by China. As The Telegraph reports, China holds $1.2 trillion in US treasury bills, and "the country has long been rumoured to be seeking to diversify the reserves held at the People’s Bank of China. Buying gold mines could help with this task." If China takes a significant stake in gold, the price of gold could skyrocket.

What does it all mean?

So, what's going to happen? The answer is, I don't know. If I had a crystal ball, I’d be a much richer man than I am now.

What I do know, however, is that the dollar is in trouble. The rich understand that savers are losers, and they're continually looking for assets into which to move their money.

If you want to be rich, you also have to think like the rich. What I'm not suggesting is that you invest in gold. Only do so if you do your homework, measure the risk, and feel it's the right thing to do. What I am suggesting is that you start looking for places to move your dollars. Whether it be real estate, business, technical stock investing, or commodities, it's important for you to invest in assets that can hedge against inflation——if you want to be rich.

So, what's your take? What do you think is going on with gold? What assets are you targeting with your dollars?

Share your knowledge here with the Rich Dad Community.

Original publish date: August 21, 2012