Gold hit a new record high on Tuesday as the $1 trillion bailout of the Euro-zone region combined with the giant U.S. deficit leaves bullion as the only reserve currency of choice.
“You finally have a fundamental reason to own gold,” said Joe Terranova, chief market strategist for Virtus Investment Partners and Fast Money trader. “It’s a diversification tool for central banks around the world, especially China and India, now that the Euro is on the run.”
Today gold settled at new all-time high of $1,220.3 an ounce. Investors sent the metal reeling earlier in 2010 as government data showed concerns about inflation were overblown. The SPDR Gold Trust , one of the many ETFs out there focusing on the metal, is up 14 percent from its 2010 low in February.
The ECB’s purchase of government debt as part of the bailout plan will be at the very least “detrimental to the integrity of the currency itself,” wrote Dennis Gartman of The Gartman Letter. “That process shall tend on balance to put upward, perhaps relentless, pressure upon gold as gold becomes every day to be seen as the second reservable currency, supplanting the EUR which had assumed that rule until quite recently.”
Gartman, who predicts the Euro will eventually be forced to break apart one day, agrees with Terranova that the central banks of the world have no other choice now than to own gold. Sure, there are other currencies, like the Canadian Dollar, which will gain favor, but none have the liquidity and fungible value of gold. This enormous force will put a long-term bid under the metal, they said.
Gold lost its inflation-hedge identity following a loss of its safety identity in 2008. Gold plummeted in 2008 along with almost every other asset class as investors were forced to take profits in the metal to raise cash for margin calls and redemption requests. But now we face a crisis centered around a currency and not exotic derivatives which had diseased every corner of the financial system.
“It’s different this time,” said Terranova, who is also a ‘Fast Money’ trader. “It’s true identity is a safety play and inflation hedge and this time around it will be viewed as such.”
For the best market insight, catch 'Fast Money' each night at 5pm ET on CNBC.
______________________________________________________Got something to say? Send us an e-mail at fastmoney-web@cnbc.com and your comment might be posted on the Rapid Recap! If you'd prefer to make a comment but not have it published on our website send your message to fastmoney@cnbc.com .Trader disclosure: On May 11, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Tomasulo Owns (VXX); Tomasulo Is Long VIX Options; Tomasulo Owns (GLD); Tomasulo Is Long Spot Gold Futures; Tomasulo Owns (VZ); Tomasulo Owns (CAT) Puts; Najarian Owns (KGC) Call Spread; Najarian Owns (XOM) Call Spread; Najarian Owns (MS), Is Short (MS) Calls; Najarian Owns (YHOO) Call Spread; Najarian Owns (C) Calls; Najarian Owns (BP), Is Short (BP) Calls; Najarian Owns (TEVA); Najarian Owned (BP), Was Short (BP) Calls Today; Grasso Owns (BP), (NDAQ), (DYN), (LPX), (ASTM), (ABK), (BAC), (BGP), (C), (CVGI), (JPM), (NEM), (PRST), (PFE), (BA), (T), (CSCO), (X); Terranova Owns Gold; Terranova Owns (GLD), (RIG), (SWN), (PFE); Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE), (BTU); Kelly Owns (FXE) Puts; Kelly Owns (FXB) PutsFor Joe TerranovaTerranova Works For (VRTS)Terranova Is Chief Market Strategist Of Virtus Investment Partners, Ltd.Virtus Investment Partners Owns More Than 1% Of (AMKR)Virtus Investment Partners Owns More Than 1% Of (IGE)Virtus Investment Partners Owns More Than 1% Of (DBV)Virtus Investment Partners Owns More Than 1% Of (XLB)Virtus Investment Partners Owns More Than 1% Of (XLV)Virtus Investment Partners Owns More Than 1% Of (XLP)Virtus Investment Partners Owns More Than 1% Of (XLY)Virtus Investment Partners Owns More Than 1% Of (XLI)Virtus Investment Partners Owns More Than 1% Of (XLU)Virtus Investment Partners Owns More Than 1% Of (DRYS)For Steve GrassoStuart Frankel And Its Partners Own (AMR)Stuart Frankel And Its Partners Own (BAX)Stuart Frankel And Its Partners Own (DYN)Stuart Frankel And Its Partners Own (CUBA)Stuart Frankel And Its Partners Own (DYN)Stuart Frankel And Its Partners Own (GERN)Stuart Frankel And Its Partners Own (HSPO)Stuart Frankel And Its Partners Own (MERC)Stuart Frankel And Its Partners Own (NWS.A)Stuart Frankel And Its Partners Own (NYX)Stuart Frankel And Its Partners Own (PALM)Stuart Frankel And Its Partners Own (PDE)Stuart Frankel And Its Partners Own (PFE)Stuart Frankel And Its Partners Own (PRST)Stuart Frankel And Its Partners Own (RDC)Stuart Frankel And Its Partners Own (TLM)Stuart Frankel And Its Partners Own (XRX)Stuart Frankel And Its Partners Own (SDS)Stuart Frankel And Its Partners Are Short (QQQQ)Stuart Frankel And Its Partners Are Short (CL)Stuart Frankel And Its Partners Are Short (AAPL)For Brian KellyKanundrum Capital Owns (GLD)Kanundrum Capital Owns (GFI)Kanundrum Capital Owns (AUY)Kanundrum Capital Owns (TLT)Kanundrum Capital Is Long U.S. DollarKanundrum Capital Is Short EuroKanundrum Capital Is Short YenKanundrum Capital Is Short PoundKanundrum Capital Is Short Swiss FrancKanundrum Capital Is Short (USO)Kanundrum Capital Is Short (DE)Kanundrum Capital Is Short (NUE)Kanundrum Capital Is Short (XOM)Kanundrum Capital Is Short (HES)Kanundrum Capital Is Short (XLE)Kanundrum Capital Is Short (XLK)Kanundrum Capital Is Short (XLI)Kanundrum Capital Is Short (XLY)Kanundrum Capital Is Short (FXI)Kanundrum Capital Is Short (EWH)Kanundrum Capital Is Short (RSX)Kanundrum Capital Is Short (XLF)Kanundrum Capital Is Short (EXPE)Kanundrum Capital Is Short (IBM)Kanundrum Capital Is Short (SU)Kanundrum Capital Is Short (CME)Kanundrum Capital Is Short (DE)Kanundrum Capital Is Short (FDX)Kanundrum Capital Is Short (AA)Kanundrum Capital Is Short (CLF)For Anthony ScaramucciScaramucci Owns (AAPL), Skybridge Owns (AAPL)Scaramucci Owns (BAC), Skybridge Owns (BAC)Scaramucci Owns (DIS), Skybridge Owns (DIS)Scaramucci Owns (GS), Skybridge Owns (GS)Scaramucci Owns (JPM), Skybridge Owns (JPM)Scaramucci Is Long S&P 500, Skybridge Is Long S&P 500For Peter SchiffSchiff Owns Gold
Schiff Owns Gold For ClientsFor David BankRBC Capital Markets Provides (DIS) With Non-Securities ServicesRBC Capital Markets Has Provided (DIS) With Non-Securities Services In ThePast 12 Months
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