Monday, October 06, 2008

Gold set to leap?

Jesse repeats the theory that the gold price is being held down at a time when we would expect it to soar. Presumably the stratagems will fail at some point. (Update: he's now tipping a spike, maybe doubling the current price.)

But as I said to clients long ago, whatever you treat as an investment will behave like one. We did it to houses, and see the result now; so investing in gold in the hope that you'll be able to sell on the spike, is a risky strategy. Buying in at a reasonable price, hoping simply to preserve your wealth; that's a different story.
As I said quite a while ago, if you try to draw a line to get a notion of an "average" gold price, adjusted for inflation, where would you draw it? The current price, if you look at the graph above, would already seem to be above the median, presumably factoring-in concerns about the economy and currencies. My best guess, the last time, was about $650/ounce. Now there may be some opportunity for fast-handed speculators, but at the present price level I'm not that tempted, because I'm no Marc Faber.
iTulip quotes the FT to show that the rich are piling-in to physical gold, a Faber recommendation, presumably to preserve wealth - the analysis is that governments will enter into competitive currency depreciation.
Nice to have so much wealth left after buying all you need.


Hairy Arsed Bloke said...

The word is that the Dollar exchange rate is going up as the demand for cash is being met by the Forex market because nobody will lend at the moment. Gold, oil and other commodities as well as stocks are being used to buy Dollars. Once the banks have run out of gold, etc, the prices will rise.

Old Prof said...

Even with our present difficulties, there is still a lot of wealth, and a lot of us. Assuming that people still believe that gold has value, the price will get a lot higher.

Sackerson said...

HAB, Prof, thanks. But past history does suggest that timing will matter quite a lot. And there's lots of other things to swap your soon-to-be-worthless currency for: things you can eat, drink, wear, live in, heal yourself with, protect your family with.

James Higham said...

Isn't that interesting - everything but gold collapsed today and yet gold will leap into the hands of the moneyed. Game, set and match.