Gold was up nearly $6 yesterday to close near the number of the beast in New York at $662.80 per ounce. What makes gold go up? In one place we read gold tracks the euro, and that every year since 2001, since the euro began trouncing the dollar, gold has tagged along. Others say gold gets a ride on oils back. When oil goes down, gold will go with it. None of these explanations is entirely right.
Gold really is a hedge against inflation. When commodities become stocks and hedge funds become stocks and stocks become a kind of public currency for wealth building, gold trails them from a distance, sometimes jumping ahead a block or two, but always near by. It watches bemusedly as people measure their new wealth in the latest currency du jour.
Gold, which has always been and will always be money, has seen this show a thousand times before. It knows how it always ends. The assets which have inflated the egos, expectations, and bank accounts of the newly duped eventually collapse in deflationary spiral. The supply of the new currency- whether its dollars or shares-eventually becomes so large and divorced from demand, and real economic value, that it becomes worthless.
But when does that moment arrive? When does the crash alert give way to the realization that your nose is about hit the wind screen and you don't have your seatbelt on? Typically, it happens when you least expect it. So circle that date on your calendar.
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About the Author
Dan Denning is the author of 2005's best-selling The Bull Hunter (John Wiley & Sons). He began his financial publishing career in 1997 and has covered financial markets form Baltimore, Paris, London and, beginning in 2005 Melbourne. He’s the editor of The Daily Reckoning Australia and the Publisher of Port Phillip Publishing.
Comment by rc on 10 February 2007:
I think you guys are always far too negative on predicting when a crash is going to occur. Its easy to predict when a crash *might* occur, its just most people are too greedy to not take the risk (at least now anyway).
Here's a few examples
1) US pulls out of Iraq. Iran and Saudia Arabia play war with each other. Oil goes to a rather large number. Probability = reasonable. Timeframe = next US Election
2) Saudi royal family gets deposed (Iran Mk II) as US takes a battering in the middle East. Probability = low-medium within the short term.
3) China lets their currency evaluate too much. Everyone else gets massive inflation. Probability = reasonable. Time frame = few years
4) Asian countries stop buying US treasuries. US gets huge recession. Probability = reasonable. TIme frame = some years.
5) China restrains its own economy too much. Economic activity falls everywhere. Already predicted a few days as a potential disaster ago by the HK parliament.
6) People start worrying about bad debt, like HSBC yesterday.
7) Bird flu breaks pandemic out. Probability = 100%. Probability with a few years = just see the WHO predictions.
and so on. I don't think these are unexpected or unpredictable
Comment by siaw on 6 June 2007:
my currency is gold!!!