Thursday, 13 March 2008

Gold hits $1,000

....oh boy.......Inflation, here we go......

The price of gold reached a record, trading at $1,000 an ounce for the first time, pushed higher by a weak US dollar and fears about the US economy. Concerns about a possible US recession are seeing investors buy up commodities such as gold as an alternative to company shares and the US dollar. Since the beginning of the year the value of gold has increased by about 20%, after it rose 32% in 2007


Anonymous said...

If the central banks are looking at inflating our way out of trouble gold may be the way to go for anyone that wants to ensure the value of their savings. Bit tricky to spend in Tesco's though.


Anonymous said...

"Ethiopia's national bank has been told to inspect all the gold in its vaults to determine its authenticity.

It follows the discovery that some of the "gold" it had bought for millions of dollars was gold-plated steel.

The first hint that something was wrong reportedly came when the Ethiopian central bank exported a consignment of gold bars to South Africa.

The South Africans sent them back, complaining that they had been sold gilded steel."

Anonymous said...

Two immediate problems that are hard to separate:

1) The dollar is down
2) Gold is up

Gold has almost no commodity value because about 85% of the gold that has ever been discovered in human history is still there. It doesn't get 'used'.

There's quite a bubble in gold right now in the sense lots of people are buying into it who might otherwise hold other asset classes. Alot of them will have leveraged to do it. That's not the same thing as inflation.

To the extent gold remains the same price against other hard assets, while rising against the dollar, that's a result of inflation.

It's very very difficult to separate.

I think the Great Leverage Unwind is going to sink the dollar price of gold because collapsing credit will outpace money printing and thus the deflation (result = higher value of the dollar) will put Gold back below $1000.

Look at gold vs dollar around early 1980s to see something similar.

Just like house prices, gold doesn't always go up.


Anonymous said...

Nick: ¨Just like house prices, gold doesn't always go up.¨

True, to an extent.

Gold C1960 - $35/Oz. Do you think we will ever see that price again?

But in the current environment where nearly all the western governments are inflating like mad to stave off the credit crunch, then Gold going higher is, I think, a sure bet.

Anonymous said...

Sure, there's a good chance but I'm betting people in our position in 1980 were thinking exactly the same thing but when Volker jacked interest rates up to 20% gold halved against the dollar.

Each to his own. I've got an offshore gold account ready incase there's an announcement from the BoE that says words to the effect of "we'll inflate and damn the consequences". Until then it'll remain empty and I'll bank on effective deflation as credit evaporates, Japan-style.


Anonymous said...

Nick: ¨Each to his own. I've got an offshore gold account ready incase there's an announcement from the BoE that says words to the effect of "we'll inflate and damn the consequences"¨

I don´t think anyone is suggesting you should put all your spare cash in Gold, but a significant fraction is not a bad idea. The government, I assume you live in the UK, is hardly likely to make such an announcement, look at the proxies for such an announcement. You will see they already have in fact said as much.

Gold was £267.18 at the second of Jan 1985
Begining of this year it was £424.80, it is now as of yesterday £485.26. Even if, as you say, gold has no intrinsic value, what do the figures say about the value of sterling?

Incidently, Sterling, like the US$ also have no intrinsic value. They are worth just what everyone thinks they are worth, at the end of the day, you are left grasping a peice of paper.

Finally, yes, gold may just be in another bubble. But approach it with that knowledge and people may just be doing themselves a favour.

Anonymous said...

Oh I agree on the fundamental points - namely fiat currency is just a promise to pay, and prone to inflations whereas gold is money and stable in supply.

The issue here is demand for gold. I think people are leveraging up and piling into gold at a far higher rater than mere inflation of fiat currencies justify. These people will not or cannot stay in gold long term so it'll come back down to earth.

Gold also goes down from peaks, like it did in the early eighties. If the true value of gold is about £350 (when the bubble pops)then I don't want to buy my gold at £485 or I've realised a far greater loss than just holding pounds.

But it's all difficult to unravel, and I'm not buying anything unless I know how to value it.


Budvar said...

Chefdave said.

"Ya cant spend gold in Tescos".

Right, so can you spend insurance policies, your house, classic Ferraris or a host of any other investments/hedges in Tescos?

If bread ever gets to a gazillion quid a loaf, Tesco will accept tap washers, rusty nails or just about anything else other than pound notes, I assure you.