Boring Gold

Everybody is talking about gold. Can we avoid it? It's winter, days are shortening, gold gets its eternal allure for reminding us, in our dark and damp caves, that the sun god will rise again.
Enough crap: here is the chart of the dec9 future price.

Do we buy it, do we sell it, do we steer clear?
Quite a few people are buyng:
the central bank of India recently bought 200 tonnes from the IMF, bringing its percetange of reserves held in gold to ~4%. Note that europe is said to be above 60%. Note also that the IMF has sold double that quantity.
Paulson the hedge fund manager is buying it. He has started a new fund just for the hell of it, and he himself will put at least 250 M$ of his own money (that ~7 tonnes of gold).

There are rumours that his assorted other funds might already have accumulated ~10% of their NAV in gold assets, that is ~3 G$ (3 billions dollars) i.e. ~80 tonnes of gold.
No idea whether that is believable, but if it is, and was accumulated over the last few months, it could have helped driving up the price, given the size of the market.
 Here are some numbers, courtesy of the World Gold Council:

So, buy or sell? The noise is deafening now, the arguments well known, let's sum them up as if they were just 4.

The first one in favour of gold argues that:

1) hyper-inflationary fears will drive large demand fiscal deficits are exploding around the world, central banks are monetizing them e.g. flooding the world with "paper" money and easy credit, hence most currency will get trashed, gold will shine on, as crazy diamonds do, being perceived as a store of value which has worked well for millennia, when the fiat money breaks down.

The second argument favouring gold is simpler:

2) central banks anywhere apart from US, UK, and Europe need to diversify from the US dollar, and hence will have to buy thousands of tonnes of the shiny stuff.

And now for the two arguments against gold.

The first one is the goldilocks bull's argument aka Leibniz:

3) the fiscal deficits will not explode, the monetary base will be contained, the central banks will be able to engineer orderly exit strategies, and isn't this the best of all possible worlds anyway? hence credit cards will keep on working, else God wouldn't have allowed them to be invented.

The second one comes from the gloomy bear's corner:

4) the world economy is entering a lost decade or two, as Japan did, and the main effect will be long term deflation, not hyperinflation, because there will be enough domestic savings to buy long term government bonds, financing the fiscal deficits.  It all ends in tears of course, but 20 years from now.

In the short term, none of the above matters: there is too much speculative flow for the fundamentals to matter.

In the long term, if you a hyperinflationist, you are probably best advised to use your money to buy a logcabin on the hills, close by a deep well of potable water, pallet loads of baked beans, several automatic weapons and large amounts of ammo, rather than gold, which you can't eat.

If you are in in the second camp, with insider knowledge of CB's intentions, go ahead buy lots of gold.

You a Leibniz fan? sorry can't help. She may though:

That doesn't describe your disposition? A gloomy bear then? forget gold... buy bonds, if you still can afford them, and keep on looking for a safer job.

There are of course other scenarios (e.g. first world deflationary, emerging market decoupling, etc), so it is time to cut to the quick: what do the chicken viscera have to say about gold?

Easy: they suggest a limited pull back on the short term, as hedgies complete their buying,  and then a strong rally into H1 next year.

But why go for that? you could toss your own coin, stick a finger in the air, watch the swallows. Whatever you do, read the usual disclaimer