There are two camps of how to return the UK economy to growth and reduces our heavy debt, spend and cut or simply cut. What ever your personal view the new coalition government has decided that we will swallow the austerity pill with drastic cuts.  This has gone down well and the pound is at its strongest against the euro since November 2008 and the euro itself strengthened after the European central Bank has tightened monetary conditions.

We have seen a pull back in the gold price, but is this down to austerity which is the new buzz word in the UK and Europe. So as we start to live within our means does that mean that the need for gold as an insurance is weakened ?. We are rightly entangled in European economics as this is what affects our daily lives, but we found in 2008 that greed and subsequent collapse in America created an economic crisis in Europe, the worse since 1929 and the great depression. We are still feeling the affects and the steps taken to pump the economy lead to unprecedented sovereign debts and the collapse of economies in southern Europe. However, gold is intrinsically linked to the dollar so nothing has changed as the US try and spend there way out of the downturn, print more money to devalue the currency and have huge sovereign debt.

In the UK with CPI above 3% and more significantly the RPI above 5% it is virtually impossible after taxation  to get a ROI that does not lose money over the year. So that combined with economic fragility that could still lead to contagion means the case for gold is still strong.

What we are seeing is the seasonal adjustment that has been running for the last 40 years.  Gold has followed both seasonal and super cycles for decades and we are in the summer adjustment as predicted by my article on this blog in March (When is a good time to buy gold ?). However, gold has been stronger than my prediction by more than $100 per ounce, driven by more exposure to the fragility of world economies and unprecedented demand.  In fact we reached the end of year high I predicted before going into the summer recess so I would expect the price to now rise in Q4 to beyond $1300.  Traditionally investors who bought in summer made money by selling in Q4 a simple short term gain that has been repeated time and again.  Look also to the supercycle where the cycle and the seasonality meet in Q4 2011 and expect at least $1500 per ounce for the longer term investment.

The case for gold has not weakened and now is the time to buy gold the bull has a long way to run. Think also about ROI as gold and particularly legal tender gold coins (sovereigns and Britannias) stand out as a way to beat inflation and taxation. We have the best conditions in the UK for investing in gold coins no VAT or TAX applied.

Maurice Hall

Tags: crisis, DOLLAR, Economy, Gold, Gold coins, Investment, United Kingdom

This entry was posted on Tuesday, July 13th, 2010 at 9:54 am and is filed under Economy, Gold, Gold coins, Great Britain, Investment, Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.