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.