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.
"By the time you read about it in the paper it's peaked"
For what it's worth, I think the present up leg has a few more weeks to go, and gold will probably reach around 530 before it corrects. It's almost certain to correct around the beginning of next year. But nothing is completely certain, or we'd all be rich.
I put in a mild plug for gold here a couple of weeks ago, when it looked like another upleg was starting, but it's not quite as good an opportunity now. Still, I think I'm not going to lighten up for another three or four weeks, maybe.
The MSM is only just beginning to mention the subject. There have only been a very few articles, even though passing 500 was a significant milestone. You'll know it's time to sell completely when CNN is urging you to buy.
Gold keeps away the bogeyman.
'Cuz it's shiny!
LOL! And when will we start seeing posts about the "gold bubble" bursting?
Joe Kennedy is said to have sold all of his stock just before the depression after getting some stock tips from a shoe shine...
I love guys like Gartman and Bernstein, and throw in Kudlow and Luskin. They haven't recommended gold all the way up from $250 in 2001, and now they would buy it at $460. Who wouldn't! But if it goes straight up to $600, where will they be - still out of the market.
It's been 64 days since
Don Luskin, on Kudlow's TV show,
said that gold's up trend is over
and the price of gold will drop
$30-40 from $464.20!
Here are predictions you can take to the bank:
The central banks and the bullion banks are short 12,000 to 16,000 tonnes of gold, and the price of gold will equal the price of the Dow Jones Industyrial Average.
Mover Mike http://www.movermike.com
Right about the time that our paper currency begins to stabilize. I wouldn't advise holding your breath.
We are probably still fairly near the start of the second upwave. After a major bear that lasted for decades, the gold market started back up around 2000/2001 (double bottom). Then it corrected for around 18 months. Seemingly the second major upwave started around last August. It should last for another couple of years, with some large and violent corrections. Then a third upwave, which will correspond to the eruption that reached 800 the last time around. That will be when you can start talking about bubbles.
I remember that when gold was around 800, every news radio and TV reporter gave out the daily closing prices on gold, right next to the Dow and the weather report. And gold and silver jewelery buying outlets opened next to every McDonald's. When they start doing that again, you'll know the bubble is pretty ripe.
Gold is NOT an investment, not for gain, anyway. Gold is to store value while the markets all get unpredictible from the inflation that is represented by the rise in the nominal price of gold. Only some speculators make money "investing" in gold metal by playing the very short term dips and blips in the price of gold. Those who hold gold lose a percent or two in transaction costs but the main body of value does not rise or decline. Investing in gold stocks can be lucrative if bought before the gold price starts making headlines which sends folks to gold stocks and runs the prices up more than the price of the metal warrants.
For most things that is true, but not for gold. It takes a fairly long time in the normal course of events for a gold price trend to reverse. It takes a massive change in government policy, in this case a solid commitment to a stable dollar and no more "devaluation." The price of gold in dollars is the screaming telltale of dollar inflation. It mirrors the rate of the FED's creation of dollars beyond the market's ability to absorb those dollars at a steady price level. Bush is committed to strong inflation for the forseeable future because it reduces the real national debt because the debt is denominated in dollars. It is paid back by a certain number of dollars. The dollars can be any value so long as they are officially termed "dollars." The inflation makes those dollars worth less and the debt is repaid with those smaller dollars, i.e. with less value. Fewer assets are needed to repay the same number of dollars.
All governments have historically resorted to outright repudiation or inflation(in truth, partial repudiation) when they have large debts. A country with a weak economy explicitly repudiates. It cannot inflate out of debt because the debt is denominated in a different currency. A major economy government inflates.
For the truth about what is going on in the Silver and Gold markets go to the experts on the subject. They have been calling the market exactly as it has been for the last eight years.
http://www.lemetropolecafe.com
Gold to the moon baby!!!! Yeeeeehaaaaawwwwww!!!!!
GATA be in it to win it.
I've reread that prediction three times, and I still don't understand what you're trying to say. I wasn't aware that the DJIA had a price.
Which means either gold goes up or the dow goes down. What's the price of the dow mean? I share of each stock in the average? What's that worth now? How do you figure in splits. Gold can't split.
Well the DJ average is a price. It's at 10,800 today. Maybe that's the price he has in mind. Wow! That would be a major shift. People would have to stop wearing wedding rings, it would be too dangerous.
The DJIA is not a "price." It is simply a number, a weighted average, meaningless in its own right.
The DJIA is at 10,856, it is not at $10,856.
Wow! That would be a major shift. People would have to stop wearing wedding rings, it would be too dangerous.
Huh? You mean the price of gold is going to $10,000 an ounce? Don't hold your breath.
Don't say that.
My ex, used to use that as her catch phrase.
Also why I stopped buying her jewlery.
Your to kind to Joe Kennedy.
What he did, was much worse.
And now illegal, If all he did was insider trading, things would be better.
I mis-wrote when I wrote "the price of gold will equal the price of the Dow Jones Industyrial Average." That should be the price of gold will equal the level of the DJIA, meaning there will be a one to one correlation of the two. That could mean POG is $5000 and the DJIA is 5000. I wouldn't think gold and the DJIA would both be 10,800. Gold at $10,800 shouldn't be too good for the DJIAs.
Mover Mike http://www,movermike.com
What is the price of silver right now?
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