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Gold Price "Bubble" Bursting? Embry Says No

Release Date: 
Friday, January 28, 2011

GOLD PRICE NEWS – The gold price stabilized near $1,315 Friday morning after a disappointing fourth quarter U.S. GDP report. The price of gold held steady while GDP growth came in at 3.2%, missing expectations of 3.5%. Silver followed the gold price lower yesterday, falling $0.34, or 1.3%, to $26.80 amid further weakness in precious metals.

Commenting on the recent weakness in the price of gold and silver, long-time gold bull John Embry predicted that the sell-off is in its later stage, and reiterated his positive long-term outlook for precious metals. In the latest edition of Investor's Digest of Canada, Embry described the sell-off this month in the gold price as nothing more than a correction in an ongoing bull market. The lows of the current correction will be the lowest prices of 2011, Embry asserted, and "thus it is essential that investors take advantage of this opportunity."

As for those who say that the "gold bubble" has started to burst, Embry noted that the idea that gold is in a bubble is "beyond preposterous unless one honestly believes that the authorities can and will rein in the pace of money creation throughout the world. The simple truth is that they can't in our debt-logged universe unless they are prepared to accept a deflationary crash that will make the 1903's look like child's play."

Embry, the Chief Investment Strategist at Sprott Asset Management who turned bullish on gold near its bottom over ten years ago, also noted that "we are still a long way from broad public participation" in the gold sector. Such speculation by the public is generally seen at the tail end of any financial bubble, and its notable absence thus far remains a positive sign for the gold price.

"Gold is very simply money, a reality that gets lost at times when fiat paper currency enjoys a brief period of ascendancy," Embry wrote. However, as the Federal Reserve made clear once again this week, deflation remains the primary threat to the U.S. economy. In light of central bankers' commitment to fighting deflation through quantitative easing (QE) and near-zero interest rates, the Sprott Asset Management strategist went so far as to predict "QE to infinity." With QE1 and QE2 already implemented, "get ready for QE3 and most probably many more," wrote Embry, "all of which will be wildly bullish" for the price of gold and silver.

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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