Monday, February 9, 2009

Gold Price Falls Below $900

Gold as a safe haven investmentOn February 9th, 2009 the gold price fell below $900 an ounce in anticipation of a US economic stimulus plan and banking sector bailout plan. With economic uncertainty and banks in distress, investors normally shift money into gold as a "safe haven" investment. But the passing of the stimulus plan and bank aid plan will reduce short term economic uncertainty, reducing the percieved need for safe haven investments such as gold.

There was not a large movement out of gold because the stimulus plan has not yet been passed and most investors are waiting to see the outcome of the stimulus package and bank debt package, which are expected to be voted on on Monday. February 9th's gold price dropped by around 2%, or $18.30 US.

Gold as a longterm investment will weather the economic stormA passing of the stimulus package and bank aid plan could result in a much larger movement out of gold and other precious metals. But in this blogger's opinion, such a movement should be no cause for alarm for long term gold investors. The stimulus plan and bank debt package provide only temporary relief for the US's economic woes. The Federal Reserve will simply print the money to pay for these packages, further debasing the US dollar and delaying and worsening the inevitable recession that is needed to clean up America's credit nightmare. Despite a probable temporary dip in gold prices, precious metals investors should rest assured that their investment is still a wise one. The United States' economic fundamentals are catastrophically bad, no matter how many bandaid solutions politcians come up with. When the inevitable economic storm arrives, those who remained in precious metals will be glad they showed such foresight.

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