Oracle
of Omaha Warns of Onslaught of Inflation March 02, 2009
Gold
rose sharply in Asia and was up by more than $10 per ounce
before trading even commenced on the TOCOM – it rose from
$941.60/oz to nearly $960/oz but has given up some of those
gains in early trading in London and is now trading back at
$950/oz.
Gold and silver fell over 5% and 9% last week after surging
in the previous weeks and remain up nearly 8% and 17% so far
in 2009. In the short term anything can happen in all of these
markets and volatility remains very high in all markets. Correction
and consolidation was expected and warned of. Those using
derivatives and leveraged speculation continue to get their
heads handed to them on a plate and will continue to do so.
Passive long term investment through real diversification
is essential today.
Stock markets are again taking a pounding today
with Asian and European bourses down sharply (Nikkei -3.8%;
FTSE -4%) on understandable concerns about the ruptured financial
system and a global recession spanning the globe. HSBC (HBC)
will attempt to raise $12 billion in order to recapitalize
and AIG is set to be quasi nationalised with another huge
injection of US funds - a $30 billion rescue. In this climate
it is hard to see gold falling much below these levels and
gold should be supported between $900/oz and $930/oz.
Oracle of Omaha Warns of “Onslaught
of Inflation”
Legendary investor, Warren Buffett has admitted making mistakes
and warned that the US economy was in “shambles” this year
and “probably well beyond”. He said that reckless lending
had caused the worst “freefall” he ever saw in the financial
system which had made investors “bloodied and confused”.
Mr. Buffett also warned that the greater reliance
on government aid was likely to lead to unwelcome and lasting
consequences for the wider economy: “In poker terms, the [US]
Treasury and the Fed have gone ‘all in’. Economic medicine
that was previously meted out by the cupful has recently been
dispensed by the barrel. These once-unthinkable dosages will
almost certainly bring on unwelcome after-effects. Their precise
nature is anyone’s guess, though one likely consequence is
an onslaught of inflation.”
Gold has proved itself a safe haven asset in the worst deflationary
slump since the 1930’s (as it did during the Great Depression).
Should the ‘Oracle of Omaha’s’ warnings of a vicious bout
of inflation come to pass then we will likely see gold really
come into its own and likely see it perform as it did in the
1970’s when it rose from $35/oz to $200/oz, then fell to $100/oz
consolidated and then surged to over $850/oz. As ever investments
can fall as well as rise and important that investors do not
have all their eggs in any one basket – including the gold
basket.