Last year was a remake of 2001, only it was a real estate bubble bursting instead of one in the stock market. And the monetary and fiscal policy reaction has been the same … on an even grander scale! The combined monetary and fiscal stimulus to combat the recession, the banking crisis and all the other aftermaths of the burst bubble already add up to 30 percent of Gross Domestic Product.

That’s a new record by a HUGE margin: In 1974 it was 4 percent, in 1982 it was 2.8 percent and in 2001 this figure was 7.2 percent.

The Fed and the government — first the Bush administration and now Obama’s — are pulling all available levers hoping to heal what went wrong by doing exactly the same thing that was done in 2001. As in 2001, the pumping of dollars into the system is a major signal for a gold bull market. So with today no different — but actually worse — I’m sticking to my belief that gold will continue to shine.

And I’d like to note that there are at least two more reasons to believe that gold will push higher …

Reason #1:
China says it’s a gold buyer!
According to several news services, China has admitted to having boosted its gold reserves. Since December 2002 the Chinese central bank added 600 tonnes of gold to bring its reserves to 1,054 tonnes.

And while more than a thousand tonnes of gold might sound like a lot, it is a miniscule amount in relation to China’s total currency reserves.

In other words, this may very well turn out to be just the beginning of a trend for China. For years China has been rumored to be adding to its gold reserves. But until now the Chinese government refused to comment and refused to publish its gold reserves.
The obvious change in this policy is important. I think the Chinese government is sending a message, maybe as important as the one the French sent back in the 1960s. Then, under the Bretton Woods System, the French demanded delivery of huge amounts of gold from the U.S. This eventually led to the demise of Bretton Woods.

Now China reveals its growing gold reserves. At the same time it has started to openly question the international dollar standard.

Doesn’t this sound like the beginning of a new currency order? A currency order that is less dominated by the U.S. dollar and replaced with a currency order including gold. I know the U.S. doesn’t like the thoughts and understandably so. But reality seems to be shifting in this direction since the U.S. has unnecessarily and frivolously been risking the privilege of being the issuer of the world’s reserve currency. No matter where this development finally leads right now … it’s bullish for gold.

Reason #2:
Gold’s Charts Look Bullish
I use charts to confirm the fundamental picture. And when I look at a price chart of gold from 2001 to today I see a very orderly uptrend, interrupted regularly by healthy corrections. The current pattern since March 2008 does not deviate from this orderly trend.

So given the strong fundamentals and an exciting chart pattern, you should expect a continuation of the gold bull market. A breakout above the resistance line of around $1,000 would send a very strong buy signal with a minimum price target of $1,300.
And in my opinion, the gold mining sector looks even more attractive because in relation to gold prices, the mining companies are extremely undervalued.

Again, I am not a gold bug. But if all the stars point to a bull market in gold and certain gold stocks, I definitely want to participate and so should you! Best wishes,

(This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.)

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