Why Arabian investors should buy and hold gold!

Arabian investors should be piling into gold at these price levels. For the recent rout of gold prices is entirely down to a concerted attack on gold by the central banks, and the fundamental factors supporting the gold price have got stronger and not weaker.

First, the US dollar is weakening against most currencies. This is supportive of gold which is priced in US dollars. Most currency analysts now believe the dollar is heading lower, and that will keep the gold price rising at least in dollar terms.

Secondly, inflation is now re-appearing all over the world as a menace to economic growth and capital market stability. Gold is the classic 'safe haven' investment and a hedge against inflation.

Safe haven status

Therefore, Arabian investors who want to preserve their wealth in this environment should buy gold and not equities or bonds whose future is much more open to doubt. Indeed, the weakness seen on global capital markets in the past month may be just a sign of days to come, perhaps this autumn, with a full scale financial crisis.

Gold will definitely be the place to have some money in such an environment, and precious metals will likely outperform all other financial assets.

In truth the central banks that manipulate currency markets, and gold is a quasi-currency, have deliberately attacked the gold market, according to traders who follow these matters day-to-day.

They hope by attacking a symptom of inflation that they may find a cure, but this is a hopeless task, and with the inflation genie out of the bottle any suppression of symptoms will not last for very long. And once investors really 'discover' gold the fireworks in the gold market are going to be spectacular.

Gold is cheap

For the entire stock market capitalization of gold stocks is less than half the value of Microsoft, reflecting the extreme undervaluation of gold which has lagged behind other commodities in the recent commodities boom. Once global investment interest is really focused on gold the flow of money will produce amazing gains in this sector.

Indeed, another very clear reason to believe that the gold rally has corrected and not gone into a bear market is that the obvious signs of a runaway bull market are not yet in evidence. This is a market traded by central banks and a few professional investors, and has yet to attract a rush of mass rush of investors.

Gold supporters argue that such are the fundamentals of global finance today that an increase in the gold price is inevitable. Buying now while prices have been temporarily depressed is thus a great opportunity. But gold prices are volatile and trading is only for the true experts, and that should be the real message to learn from the past few weeks.