Gold is near a 27-year high. Even at that, it might be the best bargain in the financial world. Everywhere you look...records are being broken. Tin hit an all-time high earlier this week. The Australian dollar is at an 18-year high against the greenback...oil approaches its all-time high set last May...and China...well, in China so many records are being broken it is if a dump truck had smashed into the Mo-Town Hall of Fame.
China's record growth - fastest pace in 12 years - accounts for some of the other records. It is drawing down a large part of the world's stock of natural resource savings. No wonder the price of tin is going up...and the price of oil. Even the Baltic Shipping Index - which measures the demand for hauling dry goods by sea - is at a new high.
But some of the price growth - and maybe most of it - can also be a measure of the falling dollar. The more dollars in circulation, the less of the past each one should buy. A barrel of oil, in 1998, could be traded for 11 US dollars. Today, you need 78 US dollars to buy a barrel of oil. Gold, on the other hand, has gone up less than half that much. If gold were to go up as much as oil, an ounce of it would sell for about US$1,800 today.
Why has gold not kept pace with oil? Probably because you can't use gold to run your automobile, or generate electricity, or make steel. Gold is not as directly connected to the Greatest Economic Boom Ever as oil is.
It is not a boom-time metal. It is bust-time metal, only useful as a hedge against prosperity...especially valuable when the boom turns out to be not quite as great as people hoped, there will probably be a lot of people who wished they had stored more of their wealth in the yellow metal.
Bill Bonner
The Daily Reckoning Australia
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About the Author
Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Comment by kage on 23 July 2007:
It surprises me that the USD is still being used to measure other goods. It's a bit like snipping off the end of a tape measure from time to time - that way you can pretend your house is bigger than when you first bought it.
Comment by Andrew Vidor on 23 July 2007:
The ideal scenario for a rocketing gold price is rising inflation with falling economic growth in the US. That day is not yet upon us. Eventually it will be and I expect gold to move well over $2000 per oz.
Comment by allen j on 24 July 2007:
Dear Mr Bonner ,
I'm a bit intrigued by your's and Adrian ash's (althogh his I can understand ) obsession with gold . At the moment i'm to frightened to invest in equities or property because here in Australia they are at record highs .
The gold scenario interests me , but what do I do about ? Do I buy gold bullion from the Perth mint and hide it under the bed --- the cleaning lady might steal it ! do I buy gold mining stocks that might crash when the bubble bursts ? The price of gold is very volitile and it makes me nervous , so Mr Bonner , how about some practical down to-earth hints on how to make money ,or safe guard what i've got , out of gold .
Allen j perth --australia
Comment by john of sparta on 31 July 2007:
re: allen j.
here's what i do:
three-parts....
1. invest in gold like nothing
is going to change soon. buy
gold stocks/futures and make
mo' money online trading.
2. invest in gold like the
world's going to end
(coins/bullion.etc).
keep it at home hidden in
books. crooks don't like
books.
3. invest in gold in case of the
unexpected. what's that?
it's unexpected.
Comment by Melquior Chaves on 16 August 2007:
Hi Experts,
Have been following the discussion on Gold. My question is, is there any financial fund in Australia based on Gold where I can invest my money? Don't like the idea of buying the phisical metal.
Thanks
Comment by phwhite on 21 October 2007:
To Melquior Chaves (16 Aug 2007) I have been looking at Perth Mint Website especially in allocated and un-allocated storage, this may suit your needs. Especially un-allocated storage. There is an element of the physical ownership but held securely with no fee attached as the Mint is still able to have dealings with your investment and makes a modest return which covers the storage fee. This is how I understand it. Good Luck.