Tags: sean | hyman | gold | dollar

Only One Nation's Currency Will Cash In on the Gold Rush

Monday, 26 Apr 2010 03:41 PM

By Sean Hyman

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The excitement was in the air when gold soared to new all-time highs around the $1,220 level.

But then when it made its way down to around the $1,050 level, many investors wrote gold off.

In fact, many of them think that its a bad sign that gold has traded sideways for almost five months now in a $100 range between roughly $1,070 an ounce and $1,170 an ounce.

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So while it may look that way to the untrained eye, I'd like to present my case as to why gold is going to head higher — and to tell you about one currency that will benefit from its continued rise.

It's my opinion, from watching all kinds of financial assets trade in the market for more than 18 years now, that when new highs are hit and then a long period of consolidation happens afterward that its a good sign for that financial asset (in this case, gold).

Why?

It's because it shows that investors are continuing to go in and buy gold above the $1,000 mark each time that it dips.

Also, don't forget that India and China both have huge purchases at or above the $1,000 an ounce mark too.

Now these central banks aren't stupid and no one is forcing them to buy gold at these levels.

I don't think they made a mistake by doing this either.

You see, technicians know that gold has recently made a "higher low" and also finished off a bullish "inverse head & shoulders pattern." This is a chart pattern that highly suggests that prices are about to head higher.

In fact, the minimum prices that this pattern typical would reach upon breaking out would cause it to hit new all-time highs in gold.

Now why would these central banks and the general public be buying gold above $1,000? I say it's because of the enormous debt levels that the industrialized countries are carrying right now.

For instance, Japan alone carries a public debt to GDP ratio of 200 percent.

Most of the other six industrialized countries in the G-7 aren't that much better off either. These countries are strapped with debt. They're all going to have to raise taxes to even attempt to pay that debt off. (Remember, these countries increase their income by increasing our taxes).

The more you're taxed, the less you can spend. The less you can spend, the less these "consumer led" economies grow.

So when you combine high unemployment around the world, higher taxes that are to come and a high debt load all together, it doesn't equal a prosperous outcome — and these central banks and others that are buyers of gold right now know this.

Now, if there's a currency that is highly correlated to gold, it's the Aussie dollar.

Why the Australian dollar?

It's because they are the third largest miner and exporter of gold in the world (only followed by China and South Africa).

Therefore, if they dig it out of the ground at a somewhat fixed cost but they're able to get higher prices for it, their profit margins expand and times look better for the "land down under."

Many people think that the Aussie dollar is topping out just like some think the same thing about gold right now.

However, I say that the rally isn't quite over in either of these just yet.

I think they are both just consolidating at high levels and they're preparing to launch out of these multi-month bases that they've built into "higher highs" on their price charts.

So as gold, silver, copper, etc. all head toward new highs over the upcoming months, the Aussie dollar will flourish right along with it.

The reason you should own it is because you can earn daily interest as it goes up. This is something that you can't do with gold, but you can do with the Aussie dollar as it goes up right along with gold. So it's almost like owning "interest bearing gold." That's what I love about it, since I'm so bullish on the yellow metal right now.

So definitely own some gold, but don't forget to pick up some Australian dollars too while you're at it. You don't even have to go outside of the U.S. to take advantage of this "daily interest."

In fact, I have my subscribers to the Money Matrix Insider in the Australian dollar right now through their currency (forex) accounts.

Check out that newsletter service where I give exact buy, stop and limit recommendations. Heck, I'll even suggest how much to buy per X amount of dollars in your account too.

About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of Money Matrix Insider. Discover more by Clicking Here Now.

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