Gold At $3,000?

Marshall Auerback: A November 25 Interview

By Kevin Michael Grace

Q: Let’s talk about the effect of the turmoil in Europe on the markets. The line we get from financial reporters is that gold has fallen from $1,900 because of a flight to safety and that people are liquidating their positions in order to cover losses elsewhere. And yet we are confidently informed that not that many people are invested in gold.

Marshall Auerback: A November 25 Interview

A: They’re both right. It’s a small market ultimately, and you don’t have the same level of participation in the gold market that you did in the 1970s where I think 5% of pension funds were in gold. You’ve had a lot of leverage speculators that have held large positions in gold and when they get margin calls, they dump the stuff, and that has an impact on the price. I would argue that gold behaves in a textbook bull market fashion. It goes up; it falls back, it bases at a higher level. Now it’s basing at $1,600, $1,700. Earlier, it was basing at in the $1,400s, but it keeps edging up, and I think it’s poising for another explosive move to the upside. Clearly when de-leveraging strains are very acute, people just want to go for cash. So they sell the profits they’ve been sitting on, and gold gets hit like everything else. In many instances, investors are going after dollars to offset the impact of de-leveraging. How much longer that goes on for I don’t know. If these strains in Europe continue to intensify, I think that will be bullish for gold. I think the policy response you’re ultimately going to see is going to be gold bullish because I think ultimately it will create additional currency turmoil everywhere, and the bid for gold will remain as an insurance policy against it.

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