Digest Gold

The United States won Senate approval for all US787 billion economic stimulus package, but the markets immediately sold because of concerns about the lack of detail in the proposal. The recovery plan consists of: $ US212bn tax relief, expenses of $ US308bn and $ US276bn help.

The bill under U.S. bailout and stimulus packages now stands at $ US1.2 billion, with an expectation that this balloon to more than U.S. $ 2 billion.

To give you an idea of what a trillion dollars, think of it this way. For those of you who believe in the birth of Christ: if you spent one million dollars per day for each day since that date, you are still not spent one billion dollars.

Asian countries have joined the party with fiscal stimulus packages: $ US14bn Paris, $ US27bn Taiwan, Korea $ US66bn, Japan and China US147bn $ $ US582bn.
Australia is not immune from the largesse, as our market is digesting the passage of K Rudd Government stimulus plan $ 42 billion and what it means for our economy.

Bleak future for paper money:
The problem with all these bailouts and stimulus is that the current generation is huge debt burden on future generations. These recovery plans will eventually cause inflation and possibly hyperinflation, which deflates the value of paper money.

The U.S. dollar (USD) has been benefiting from being regarded as the world reserve currency and has had a stellar run since August last year. However, at some point it will also be subject to deflation of value, like all asset classes in the U.S. economy is under pressure, including real estate, finance and the automotive to name a few.

The euro and the pound are affected drivers with GDP contracting economies and rising unemployment, resulting in their currencies being sold accordingly.

The Japanese yen has seen the unfolding of the carry trade, which had kept a lid on the yen since the 1980s. The Yen is now stronger against all the majors and exchange their exporters suffer double blow to find a strong currency and the GDP contracting (at an annualized rate of 12.7%).

The Canadian and Australian dollars are taken hostage at the retreat in commodities.

Everything is relative:
MDS Financial examined the performance of gold (in USD) compared to the ASX200.
Since the beginning of 2008 has surpassed the gold with gold up 9% in USD, while the ASX200 has fallen by over 44% (see table below). You can see gold has been sold consistently in 2008, when it peaked at the beginning of the year just over $ US1000.

Even if we begin to measure the relative performance of the ASX200 and gold six months ago (eg, starting from August '08) of gold has increased by 12% while the ASX200 was down 26%. (See below)

What's in Store for gold?
Now if we move the starting point of reference for the beginning of November '08 when the government started talking about "stimulus" and bailouts and markets began to rebound. Gold has risen 30%, while the ASX is down 12% (despite a 20% rally from mid-November in the beginning of this year).

Conclusion
Gold will continue to shine this year with a high probability of retesting the $ US1000 level he reached last year. Channel trade gold on the rise that has been implemented since the beginning of November '08. You can exchange this theme through CFD and Spot Mini contracts in gold. Otherwise trade through gold stocks on the ASX, Newcrest and Lihir including in large-cap, or through many small caps likely to shine, including Sino Gold, Oceana Gold and Dominion Mining .
To take advantage of weaker currencies and gold reinforcing stay tuned MDS Financial - research as we highlight when it is the best time to enter the trade.

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