Gold, the next Bubble?
There has been a lot of talk about Gold over the last few months. On Friday it surpassed $1000 per (Troy) ounce for the first time since last March. Traders and Investors are looking at it as a “Safe Haven” as stocks continue to fall and the recession worsens. I know personally of a few (5-6) traders in my office who have been buying physical metals. Gold, Silver and Platinum. Why, well I think partly they have lost confidence in the financial system and partly as part of a balanced portfolio. I guess the question is, is Gold a safe haven needed by investors in the event that we have a total meltdown of our social system (as Glenn Beck has suggested), or the next bubble waiting to burst?
Looking at Gold on an inflation adjusted basis it is still pretty cheap. The all time inflation adjusted level is $2,224 an ounce on Jan 21 1980 according to a calculator on the web site of the Minneapolis Fed. I think the bigger question is will the stimulus package work? Unfortunately the markets do not feel it will. Trying to keep people in homes that they can not afford, could never afford and will not be able to afford even with a “refinanced mortgage” is not a stimulus. We need to get people working so that they can afford these mortgages. People are upset, and don’t want to subsidize someone else’s mortgage payment,click to see the“Rick Santelli Rant”.
We are punishing top executives of financial institutions (rightfully so) for allowing this lending to take place, don’t we need to let the people who borrowed the money surely knowing they could not pay it back suffer also?
Does all this lead to Social unrest? Does this lead to anarchy and an uprising of the Militia? If so Gold will be a (very) good investment. If confidence is pumped back into the economy and people begin to work again then not so much. If you believe in the American democratic system (Ok,OK, it is looking a little socialist right now) then I would not be holding it for the long term. I like to be more optimistic as a rule so the dire suggestions of Mr Beck do not hold much water for me. But you never know!
Good Luck and Good Forex Trading.
Comments
2 Comments on Gold, the next Bubble?
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Denis Kristanda on
Sun, 22nd Feb 2009 10:04 pm
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banker on
Sun, 22nd Feb 2009 10:18 pm
One thing need to remember, gold contract as commodity is quite small (compare to the few of the big Dow Jones member, for example), hence we cannot really gauge is as the market indicator. For me the price of gold is too high at the moment as we can see it on $700 level just a few months back.
On the other hand, the oil price is ridiculously cheap. I cannot really comprehend this oil price have been fiddling around $40 mark for quite some times. I mean, maybe it’s tru that big project being postponed, but all those cars, truck and airplane is stil hovering around the world endlessly and getting more and more each day. Soon the supply and demand mechanism will kick in and the oil will jump to much higher level where it should be.
Conclusion: sell gold, buy oil !
That cross certainly has potential. The problem could be margin calls if it is done on the futures market. Once again timing is everything.
Thanks for the comment
Good Luck
Banker
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