Gold’s Easy Money Has Been Made

08/30/2011 1:30 pm EST

Focus: COMMODITIES

Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

In this exclusive interview with MoneyShow.com, Mark Skousen of High-Income Alert explains why gold has continued to climb, and what factors are pointing toward or away from further appreciation of the precious metals.

Mark, you have been bullish on gold for a long time. Still there?

Yeah, well, I am, but gold has made a huge run-up, and we’re talking it’s at $1,800.

I guess it could go higher and so forth, but as the old saying is on Wall Street, the easy money has been made. Of course, that’s the phrase you always hate to hear as an investor, but it’s too late to invest in gold.

I’m still holding on to it—it’s still in our Forecasts and Strategies portfolio. We recommend the ETFs for gold and silver, plus we recommend that people actually buy gold and silver coins.

I have a Mexican 50-peso here, which is my favorite gold coin like the double eagle, except this is 1.2 ounces of gold, and that’s also got my birth year on it so it’s kind of like a good luck piece, but it’s a beautiful coin that people can invest in.

Silver is the poor man’s gold. You can buy it for $40.

But it can make you rich.

Look, a year ago it was $20, so it’s doubled in value in the last year or so. So all of these things have really gone up. To this, of course, the paper dollar continues to lose money as we speak.

Well, central banks started to buy gold too and it broke through—is that a sign of a top as well?

Well not a sign of the top, it’s actually what is…you know, you ask yourself what is driving gold higher. It’s an inflation hedge, but also there’s been a key factor that has now changed.

That is, central banks use to be net sellers of gold, now they’re net buyers. Particularly China. China is not only the No. 1 producer of gold—it passed South Africa last year—but it’s also going to surpass India this year as the number one importer of gold.

They inflated their money supply just like we did over the last couple of years, but they’re wisely taking some of that new inflation in the yuan and they’re buying gold with it.

It’s now a reserve currency. Every central bank is now buying gold, and any kind of pullback is used as a buying opportunity.

The third factor is the institutions—the Wall Street people, Goldman Sachs, and so forth—they’re all selling gold now to individual investors and other institutions. Remember, the University of Texas just bought $1 billion worth of gold in its endowment. Now that is something you would have never had before.

All of those suggest a positive outlook for gold, even though it’s at this super-high price.

You mentioned China and buying gold. Do you think that they will sell some of our US Treasuries for that gold?

Well, you know the US treasury is the big elephant in the room. They can’t eliminate their entire position. They’re going to have to still invest pretty heavily in Treasuries.

But gold remains another reserve currency, along with the Euro and the dollar, so I don’t think they’re going to be selling their Treasuries, or if they do they sell some marginal amount of Treasuries to buy gold.

Gold doesn’t pay any interest—of course, ten-year treasuries are down close to 2%, so that’s not paying much interest either. That’s another reason that’s driving gold, is that interest rates are so low, and the Fed is saying for two more years we’re going to keep interest rates at zero.

Then why not buy gold, buy silver? Really good, this is a continental, not worth a continental, so you don’t want to buy the US dollar, but you do want to buy gold and silver.

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