"Gold will respond" if money printing continues without reforms - Wealth Management

"These require strong and decisive political thinking that translates into direct action," says Brian Pretty of Contrary Investor

Financial markets are not driven by a consistent and unchanging set of factors over time. Investor focal points change. For now the key focal point upholding investor confidence is the unprecedented magnitude with which global central banks are printing money, accompanied by promises to do more. But the core issues mentioned above have not magically disappeared. It's in the reality of structural reforms where the real economic rubber meets the road. For now, global central bankers are being given "the benefit of the doubt" that all will end well. The thinking is that nothing can go wrong as long as money printing is in force. But for gold, that's only half the equation.

We all know money cannot be printed indefinitely (especially in the magnitudes we see today) without adverse consequences to both financial markets and real economies. The real risk ahead is that reforms addressing debt, deficits, entitlements, currency infrastructure, and systemic risks will never occur. These require strong and decisive political thinking that translates into direct action. That's where the real risk comes into play.

IF unprecedented money printing is not accompanied by successful and sustainable economic reform in the major developed economies over the next 12-18 months, gold will respond. That's the investment thesis for gold as we look over the next few years.

How far could the price of gold fall before the current correction reverses? As always, it's anyone's guess and depends heavily on supply and demand balances. Although global demand for physical gold has remained incredibly strong, it's the paper markets where we see the weakness. Gold near 1100 is not out of the question before this correction ends. But given the politically tenuous prospect for global economic reforms accompanying monetary policy across the planet, we may be looking at the final third of the secular gold bull market perhaps beginning sometime later this year or into 2014. The central bankers and politicians have so far inspired short-term confidence in the financial asset markets. It's now up to these politicians and central bankers to address the tough reform issues. If they do not, gold will have a purpose.

More information can be found online at http://www.goldbullionadvisors.com