Gold Should Rally When Facebook Goes Public
| by Hal Young
May 15, 2012 – When Facebook goes public later this week, we will likely see gold prices start to rise again. However until that happens, gold will most likely keep declining as investors are selling to raise the cash necessary to buy into Facebook.
The reasoning behind this is simple: the stock market exists simply as shares of stock and Facebook will be selling between $12 billion and $15 billion of shares to the public soon. That much cash simply isn’t available at the moment so we’re seeing stocks and gold decline as mutal funds, ETFs, and hedge/pension funds sell these existing stocks and gold.
We’re also seeing investors moving towards cash for other reasons. “People are looking to get back into cash and move to the sidelines. Given Europe’s troubles, there is a segment of investors that may want to be liquid either to sidestep more trouble or pounce on other opportunities,” said Cameron Brandt the director of research with EPFR Global, a Boston-based firm that tracks mutual fund flows.
After Facebook’s initial offering, we should see a rebound in both the market and in gold but that could be only for the short term. No new money has been going into stocks recently; in fact it has been leaving. Individuals have sold more stock than they’ve bought and Pension funds have needed to sell off stock in order to keep up with their aging beneficiaries. Unless another round of quantitative easing is announced this summer, there could likely be a weak market for awhile.
Gold however should keep rising simply because of basic supply and demand. Bullion buying is still popular with the central banks of the world and with any newly wealthy individuals. And India won’t slow down anytime soon. Mining can’t keep up with all the demand that exists right now.
Silver may also do well but it will lag behind gold. Mining shares should shoot up once the gold price starts to rise significantly.
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