Buy gold on the dip as US Treasuries lose appeal

Gold’s decline last week provides a good opportunity for investors to buy on the dip.

“Bargain hunting aided by a weakening of the USD [US dollar] and recognition that markets had become oversold” has already sparked an initial rally, stated a Credit Agricole report. The imminent Greek debt restructuring – highlighting the weakness of fiat currencies – also boosted gold.

From a technical perspective, gold is looking bullish on “daily, weekly and monthly cloud charts,” stated the Credit Agricole report.

Moreover, the International Monetary Fund (IMF) has reported that the central banks of Mexico, Russia, and Thailand have continued to buy gold. These central banks have become wary of US-dollar denominated investments, particularly US Treasuries.

At current yields, “U.S. Treasuries and the bond market in general are being ‘repressed,’ ’capped’ or simply overvalued compared to the prior 30 years,” said Bill Gross of PIMCO.

Gross is referring to the fact that US rates across the yield curve are often at or below inflation. Holder of Treasuries – like foreign central banks, for example – therefore lose real value on their principal. Moreover, Asian officials are complaining that QE2 is monetizing the US debt.

It’s not just Asian central banks that are buying gold, however; Asian consumers are also snapping up physical gold.

On the back of these supportive fundamentals, last week’s decline provides an attractive entry for new gold investments.