Bite not. These are people that bought heavily 5 years ago when gold was $311/oz. You don't buy gold now; you sell gold now.
Posted on 12/06/2005 6:55:58 PM PST by Sonny M
After years of "who cares?" status, gold is very much back on the investment map. Even ordinary investors are talking about the run-up in gold prices to a 22-year high.
That's good news for those who bought in at low prices five years ago. But is it a troubling sign for the world economy?
That's the question some investors are asking after gold topped $500 an ounce last week. Gold is considered a safe investment, so its price rises when financial uncertainty grows. Gold prices can spike amid war, high inflation, or depression.
But this year's run-up in gold doesn't mean the proverbial sky is falling, many analysts say. Rather, the simultaneous peaks in gold, real estate, and stocks are a sign of extraordinary circumstances in the economy and financial markets.
By most measures, the world economy is now healthy, posting solid growth without signs of runaway inflation. And consumer spending isn't letting up. Just consider all those shoppers braving the predawn chill to get cut-rate computers and other discounted goods at Wal-Mart the day after Thanksgiving.
But it's still a time when many investors are looking for more insurance - exactly the role that gold has traditionally played. Even if risks such as inflation don't materialize, some analysts see reasons gold could keep on rising well beyond the $500 per ounce price achieved last week.
Investors are taking notice.
"I'm starting to get phone calls now [about gold]," says William Bernstein, author of "The Four Pillars of Investing." "That ought to tell you something."
The near-frenzy of recent interest, indeed, means that investors could just as easily lose money as make it by investing in precious metals in the weeks ahead.
"It helps to buy low and sell high ... which is probably not what you're going to be doing if you buy gold right now," Mr. Bernstein says.
Gold has been rediscovered for a number of reasons, analysts say:
• Central banks, especially in Asia, are buying to diversify their reserves beyond dollars and euros.
• Concern about inflation has risen in recent years along with energy prices and US government budget deficits.
• Investors globally have "excess liquidity," lots of cash, driving up the price of virtually every asset, including gold.
• In addition to rising demand from investors, demand for gold has been rising for use in jewelry and as a status symbol in prospering Asian nations.
• Supplies may be tight. "Net new mining supply out of places like South Africa is running at its lowest level in 80 years," according to economic research by Merrill Lynch, a financial management company.
All this follows years when gold was arguably underpriced. In the 1990s, its value fell below $300 an ounce as stock markets soared and inflation ebbed.
"It's an asset class that has done so poorly for so long that it was bound to revert to its fair value," Bernstein says. "It's insurance against an inflationary scenario that does bad things to stock and bond portfolios."
For now, inflation appears to be the least of the rationales for a gold rally. Although the era of $1-a-gallon gasoline is just a memory now, rising energy prices haven't yet rippled persistently into broader inflation. The so-called core inflation rate, excluding food and energy, has stayed near 2 percent annualized. That's where it was in 1999 when gold was at a low of about $250 an ounce.
"I don't believe we are going into a period of material inflation," says Dennis Gartman, editor of The Gartman Letter on investing in Suffolk, Va.
Nor does he see other risks worsening in the global economy. "I think the war effort in Iraq is quickly coming to fruition with an election in two weeks.... The Chinese are more interested in getting rich than they are in waving Mao's red book."
But Mr. Gartman remains bullish on gold over the long term for another reason - buying by central banks.
The price of gold was long an explicit backstop for the value of paper currencies. Central banks still hold gold as part of their reserves, but many have been sellers of the metal over the years since the official US gold standard ended in 1971. But now, some central banks are buying gold.
Gartman is leery of buying at $500 an ounce, however. He would rather buy when the price weakens to about $460. He says an efficient way for investors to get their stake in gold is through exchange traded funds, such as the one with GLD as its ticker symbol. One hundred shares will track the value of one-tenth of an ounce of the metal.
Bernstein favors buying gold mining stocks, such as through mutual funds. He says those stocks tend to do better than gold at outpacing inflation over time.
Advisers generally say only a small portion of an investment portfolio - zero to at most 10 percent - should go into precious metal. Gold may be an insurance policy, but it also gives investors a bumpy ride along the way.
Gold
You are one of the few posters who make economic sense.
Many others just spout opinions.
What happens when all the naked shorts of Gold have to cover? Will the Fed bail them out?
I'm no investment big shot, win some/lose some. But buy low sell high works with gold just like it does with a stock, yet it has instrinsic value, where stocks have none (just ask Kmart investors of a few years ago). One of the luckiest decisions I made was to taking about 30% of my money out of stocks in early 1999 (yes I felt like a chump most of that year) and invested about half in physical gold and half in gold funds. Still holding all the physical and some of the funds, and they have way out performed almost anything else I have been "invested" in the last 6 years while the Dow has basically traded between 9000-10800. I may start peeling those positions off and get heavier in stocks soon. I think if you are patient, buying anything that represents value at a historic low will make you money.
They've borrowed gold and sold it? You have a source?
Very few of the folks who opine on economics, including those on the right side, have ever read an economics text.
The Clinton Fed actually began the inflation for some reason. The existence of that surplus should have precluded inflation as the debt was necessarily decreasing if the surplus was real. There was no necessity to inflate out of the debt. Bush gets the main blame for the inflation, though. He was explicit that that was what he was doing but he called it by its other name-Devaluation.
Central banks in Asia are trying to maintain the value of their holdings as the major currencies of the world get pumped full of helium. They are not gaining by holding gold except relatively. As the piles of euros and dollars get smaller and smaller the pile of gold retains its dimensions. It does NOT grow but it doesn't shrink as dollars and euros do.
We will have to wait and see, but I doubt it as the Feds will need the money elsewhere.
and the price of gold will equal the price of the Dow Jones Industyrial Average.
I don't quite understand.
A Gold Cartel suppressed the price of gold for nearly a decade, and did so in surreptitious fashion. This was accomplished by deceitful lending of central bank gold in order to add price-depressing physical supply into the market. The IMF, to accommodate The Gold Cartel, instructed the central banks to account for this gold as gold reserves in the vaults, not as lent/swapped gold they cannot retrieve. As a result, the central banks have less than half the gold they say they have. Since the supply demand deficit exceeds 1500 tonnes per year, they will not be able to get even part of their gold back without driving the price to the moon. There is a massive gold short position out there with billions of derivatives of short side exposure, enough to send gold stunningly higher at any time when a gold derivatives neutron bomb goes off. Traditional gold shorts, ones who played along with The Gold Cartel, are running for the hills. It is only a matter of time before we begin to see smoke re a Commercial Signal Failure as some short is forced to cover in fast market panic buying conditions.Mover Mike http://www.movermike.com
The last time gold peaked at $850, the price of gold equaled or exceeded the level of the Dow Jones Industrial Average. I expect that to happen again. In other words, I expect gold to be at $5000 per ounce and the level of the Dow to be at 5000, or some level. I expect them to be equal;
Mover Mike http://www,movermike.com
There are a lot of people who bought gold at almost 800 dollars per oz. _twenty five_ years ago. (as an aside it took the DJ average twenty five years to break even after the crash of '29)
More than a few dealers almost lost their shirt on Silver too. It briefly touched 50 bucks iirc. A lot of common date coins were melted, along with scrap and such.
They were paying almost 20 bucks for '64 dated and earlier kennedy halves!
Thank you. WOW! :)
I knew gold was undervalued when I bought it because at that time, the spot price for an American Gold Eagle was about $70 below the cost of mining one ounce.
The extremes of the gold price don't count. That's why we use moving averages. And silver doesn't count at all. It is not a true monetary metal. I bought a motorcycle with a couple of rolls of silver dimes back then.
.....some central banks are buying gold.....
Which central banks?
Your link doesn't work
Bite not. These are people that bought heavily 5 years ago when gold was $311/oz. You don't buy gold now; you sell gold now.
Sorry Bert, it should be http://www.movermike.com/
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