Gold climbed further into record territory Monday, trading within earshot of $1900 per ounce.
Edward Dempsey, chief investor officer at Pension Partners, has been and remains bullish on gold. "Technically, gold is not showing any signs of slowing down," he says. "It's not at the moment exhibiting any signs of weakness or slowing down."
What's driving gold now is "money running from leveraged financial system," Dempsey says, echoing the views of other gold bulls like Porter Stansberry. (See: 40 Years Later: Should America Go Back to the Gold Standard?)
The flight from the financial system resumed Monday as banks stocks stumbled into the close in Europe while weakness in Bank of America and JP Morgan restrained the Dow's rebound effort.
In the near-term, Dempsey says gold may get a lift as bullion banks seek to meet Venezuelan President Hugo Chavez's recent decision to recall his country's gold reserves. "My guess is they don't actually have the gold — it's been lent out and [banks] are going to have to scramble to get this gold," he says. "The question is: 'At what price is it going to take to get it back?'"
To reiterate, Dempsey doesn't have any specific knowledge of the whereabouts of Venezuela's gold reserves, estimated at some $12 billion in value. But "my guess is it's been lent many times over," he says. "Banks are going to have to go out and acquire that gold [and] it's going to be a higher prices."
That's not to say gold is without risks, including banks — notably in Europe —selling their gold or hedge fund managers suffering from the stock market unloading their holdings as well. In addition, the CME may again raise margin requirements as it seeks to dampen speculation in the metal, as was the case with silver earlier this year.
"You can get very strange vibrations and price distortion as the fear factor rises and the velocity of price change increases," Dempsey says.
Still, he says the market's message is clear: Gold's rally in concern with Treasuries is signaling risks of deflation are rising and investors' lack of faith in the globe's highly leveraged financial system.