When is it Time to Buy Gold?

When corporations are more creditworthy than their governments!

Gold is a strange animal, it can move for a plethora of reasons and no one ever knows which variable will carry the greatest weight in its movement. Is gold moving because of inflation expectations, trends in real interest rates, money supply growth rates in major world currencies, moves in the USD, or supply and demand? What appears to have been weighing on gold the most in the last few months was a spike in real interest rates, however, what may play an equal or even greater role in the next year or so is the creditworthiness of sovereign governments. As I show later in this article, individual corporations are now more financially sound than the government they operate in.

First Europe, then the U.S.?

While world markets have recovered significantly from their dramatic decline in 2008 and early 2009, it's good to ask: Has anything really changed? The massive debts that were accumulated over the decades were never dealt with, but rather just changed hands. Debt burdens moved from the private sector to the public sector as governments bailed out their banking institutions and simply kicked the can down the road. At some point the pied piper will have to be paid through bone-crushing austerity measures, default, or money printing...or some combination of all three.

Since the debt burdens of the world have never been dealt with and are actually building, is it any wonder that gold has been the only asset class that has had a positive performance record for the past 10 years? Government bonds, corporate bonds, currencies, stocks, real estate—no asset class but gold can claim positive returns over the past decade.

As mentioned above, the debt situation was never dealt with and was simply moved from corporations to sovereign governments. Thus, it is not surprising to see the creditworthiness of corporations relative to sovereign governments improve, but what is surprising is the degree with which this change has occurred. We are now witnessing sovereign governments display greater credit risk than the corporations within their own borders! (more)