All Posts Tagged With: "Gold"

If you haven’t sorted out whether gold shares or gold coins or gold bullion should be part of your investment strategy, you still have time to think about it and do something, if that’s what you decide. One reason you have time is that one of the strength’s of gold’s current move is that central banks are buying it instead of selling it.

Today’s Daily Reckoning will be a bit of a cautious and casual affair. Jet lag is supposed to have the same effect on the human body as drinking three beers. We’re opposed to drinking and reckoning. So today’s task is to survey the territory and compare it to what we thought about while out of the country for two weeks. The first obvious sign, when converting the currency, is that it now takes 96 U.S. cents to buy one Australian dollar.

“Gold is saying something,” writes Bloomberg columnist Mark Gilbert. What’s it saying? Nobody knows. Well, at least nobody who works at The Daily Reckoning. We listen. We hear. But we still don’t know what the hell gold is talking about. The yellow metal is speaking in riddles.

We’ve made this point before, but we’ll make it again. Today’s modern financial system depends critically on continued debt growth to stop asset prices from collapsing. In modern economies dominated by governments and their agents, central banks, money is debt and debt is money.

After its longest run of moving in tandem with the trade-weighted Dollar Index since midsummer 1991 (45 trading days; average correlation +0.58), the gold price in dollars resumed its commonly-assumed relationship with the greenback last Friday, moving opposite to the currency’s forex fluctuations.

Our dear readers who bought gold back in 1999 have made about 4 times their money. This year alone it is up 15% – a very respectable return. Most of that has come as a result of paper currencies going down. Investors are buying gold to protect themselves.

In the recent copy of Golf Digest, sitting on the coffee table in your editor’s hotel room, we happened on a two page ad for the SPDR Gold Exchange Traded Fund. It’s a pretty add, with lots of gold in it. The headline says, “Gold has a reputation for preserving wealth. Then again, we’re only going back 5,000 years.” There must be a lot of rich golfers out there. Gold made a new high when the December futures contract traded at $1,273.20.

…Maybe. We will leave the question dangling…and turn to real estate. Let’s imagine that Ben Bernanke succeeds. Let’s imagine that he nudges consumer price inflation upwards. What happens to mortgage rates? Well, they go up too. Then, what happens to the housing market?…