Gold Bug Fever Raises Many Questions

March 10, 2009 | By: Andy Abraham

Seems the Gold Bug fever is spreading to many big name hedge fund managers. The recent buyers include Greenlight, Eton Park Capital Management LP, Hayman Advisors LP and Paulson & Co, Blue Ridge Capital Holdings LLC and Highfields Capital Management LP. Some of these funds now are the largest holders of the ETF GLD as well as the physicals.

Besides me and you, it seems that these large hedge funds are starting to get very worried about the integrity of the world financial markets. Many of these managers are hard to argue with. One just has to look at the long term record of Greenlight or Paulson. But wouldn’t you think Gold should be moving higher? Shouldn’t it have surpassed 1,500.00 an ounce? One needs to realize that as much as gold can up, it can go down. Would you believe that gold could go down to $500.00 an ounce? Should one start to consider being a contrarian? How about one should be a trend follower and make no predictions, just follow gold it if goes higher without an opinion?

All of this is easier said than done, because since 1971 the faith of the US dollar is based solely on the U.S. government and its ability to tax, not Gold. How much faith can one have currently with the FED spending seemingly out of control? What if Europe's banks start to fail and domino? Why can’t this happen? How will they dig themselves out of the problems of Eastern Europe?

The million dollar question is, can gold preserve wealth while virtually every other investment is falling? What do you think?

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