Alan Greenspan: Gold Is Not A Bubble

The former most powerful central banker in the world is speaking today, and when he talks markets listen. Former Federal Reserve Chairman Alan Greenspan is speaking in Washington D.C. this morning, and he is making some poignant comments about the U.S. economy, as well as his outlook on gold, and inflation. Greenspan said he he thinks the Euro is breaking down, despite the Euro staying above the $1.40 level above the U.S. dollar for what seems like forever. Greenspan had some reservations about portion of the collateral held by the Euro area, calling some of it "questionable." With all of the problems that the European Union is currently having, Greenspan said he believes it could hurt earnings for U.S. based companies. Recently, we have seen earnings revisions come down for the S&P 500, with Credit Suisse lowering its earnings for the S&P 500 to $81, down from $95. Other banks have done the same as well. Greenspan discussed the housing sector in the U.S., and said that the U.S. needs home ownership to start improving. Since the housing bubble burst in 2006-2007, which was caused in part by Greenspan, the U.S. economy has sputtered along, ultimately falling into the "Great Recession" of 2008-2009. Even more interesting from Greenspan this morning is his comments on gold. His predecessor, Ben Bernanke, was questioned by Congressman Ron Paul earlier in the summer whether gold was money or not, and Bernanke said no. This comment lit up the debate on talk shows discussing whether gold was money or not, and it infuriated a lot of people. Many people think that gold is money, and Greenspan had some interesting comments regarding the precious metal. He believes that gold is not a potential bubble, despite it currently hovering over $1,900 an ounce as of the time of this article. It started the year around $1,400 an ounce, so there has been a healthy gain in the metal year-to-date. He also said that people who buy gold believe that higher inflation than we are currently experiencing is the inevitable outcome. Recently, we saw data from the Consumer Price Index that showed that inflation is starting to pick up. The July Consumer Price Index (CPI), was extremely hot, coming in at 0.5% versus estimates of 0.2%. Core CPI came in at 0.2%, inline with estimates. Last week, the Producer Price Index (PPI) for July said the same thing. It was also sharply higher than expected. PPI came in at 0.2%, versus estimates of 0.0%, and Core PPI rose 0.4%, versus estimates of 0.2%. You never really hear central bankers, past and present, discuss gold, company's earnings and the like. It is certainly an interesting turn of events to hear from Greenspan, the man who engineered two of the biggest bubbles in U.S. history, the dot-com bubble and the housing bubble say that gold is not a bubble. Seems like we have heard that before from Alan, haven't we? ACTION ITEMS:

Bullish:
Traders who believe that gold is not a bubble might want to consider the following trades:

• If you believe Uncle Allan is right about the precious metal, consider going long gold ETFs, such as SPDR Gold Trust ETF GLD or Direxion Daily Gold Miners Bull 2X Shares NUGT.

Bearish:
Traders who believe that gold is a bubble may consider alternate positions:

• Short gold using some of the aforementioned securities. You can also short gold miners, such as Barrick Gold ABX, Goldcorp GG and Yamana Gold AUY.

• You can also go long the U.S. dollar UUP, which would benefit from weaker gold.
  
  

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