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CEO Expects Inflation, Is Short Money, Long Gold

Release Date: 
Monday, May 14, 2012

The precious metals and equity markets saw further losses today over continued uncertainty in Europe as Greece faces new elections and interest rates moved higher on benchmark government bonds in Spain and Italy. All three major stock indices lost approximately 1% of their value during trading today. Gold was $20.10 lower at 7:31 a.m. Pacific Time on the New York Spot market, trading at $1,561.30 per ounce. Spot silver was $0.53 lower, trading at $28.46 per ounce. (Click here for the most current spot prices.)

Talks among potential coalitions to establish a new Greek government collapsed, increasing the likelihood of a new election and fears about the future of the euro zone. "The firm U.S. dollar is weighing on the mood of market players now that crisis-ridden Greece is likely to face new elections," said analysts at Commerzbank AG in a note to clients.

China increased liquidity over the weekend, cutting the cash reserve requirement ratio by 50 basis points amid speculation the Chinese central bank may take further easing measures. ANZ analyst Natalie Robertson said in a note that after China's move to boost liquidity, market players are hopeful the U.S. Federal Reserve will also go for additional easing, given the slowing momentum in U.S. economic data and growing uncertainty over Europe's banking system.

Clem Chambers, CEO of ADVFN, is long gold as he believes it is a good hedge against inflation given the problems in Europe. "What is the solution to all of the problems of the west at the moment? How are they going to get out of this? The only way that you can possibly get out of this is through inflation," Chambers said. "Well, what does that do to your cash? It really destroys it. So where do you put your money? You have to put it in hard assets. Gold is a classic hard asset."

"If you believe the western economies are going to somehow grow their way out of this debt... grow their way so they can have tax and fiscal positive budgets and trade debts, all of a sudden, then that's fine, but if you believe that it's going to be inflation, then you would want to be long gold long term."

"You can see strong inflation in certain places, in certain sectors, etc., but overall, we don't have a broad runaway inflation situation just yet, so that's what's holding gold back," Chambers said. Those who drove gold to its highs are expecting inflation, he said, noting, "it will come, and in some ways it's there in certain places."

"Personally, I choose to be short money....Buying gold is very similar to being short money," Chambers said. "Gold is quite a good hedge against inflation if your counterparty is good and if you're security is good."

(Source: "Go Long Gold," CNBC, May 14, 2012; "Gold futures slump further below $1,600 mark," MarketWatch, May 14, 2012; "PRECIOUS METALS: Gold Little Changed In Asia; Market Wary Of Greece Fallout," Wall Street Journal, May 14, 2012)

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