GOLD: BEWARE OF IRRATIONAL EXUBERANCE.
REMAINING RATIONAL IN THE WORLD OF FINANCIAL ASSETS.
THERE IS NO ‘HOLY COW’ IN FINANCIAL ASSETS MARKETS.
There are several reasons why gold prices should and should not keep on going up.
The ever weakening dollar- the gold bulls argue that the dollar is going to continue to weaken and due to that gold prices will continue to rise. But friends we have seen in history that the dollar has slid against euro even lower levels than the recent lows.
Negative point:
The bear market in gold lasts a lot greater than that of equity.
I also feel that the end user has certain non-tolerance level when it comes to use of gold prices. The industrial people will definitely cut back on inventories while the users of jewelery will unless inevitable, not buy jewelery
There is a limit of tolerance for end users-the industry.
When more return/crazy euphoric bull markets in emerging-other equities will start fund managers will move from gold to equities.
People need to understand that International Funds/investors including hedge funds are traders of financial assets. They don’t fall in love with them. They trade with stoplosses and extensively use technical analysis and quant theories and models. So infact they are the biggest risk to gold prices because when they will sell, they will not care about ‘the the holy precious metal’ status. They will just sell when their trailing SL is hit.
IS WAR COMING?:
In fact the 9-11, afganistan, Iraq war ended. In case china invades Iraq it will not affect usa or Europe because their natural resource needs are satisfied by africal and other countries. Can china go war with usa. No one has given such opinion or view. China owns billions of dollar to America and japan is the world’s largest creditor nation. USA is increasingly strengthening its association with china. The terrosiam is an almost taken for granted permanent phenonmena. It impacts only crude oil and other commodities of ‘supplyable value’, mostly crude and natural gas. Both’s prices rise if some of these gang attacks on pipelines anywhere.
Gold is hoarded and is mostly recyclable unlike crude oil and agricommodities which are perishable and once used can not be recovered or reused.
The strongest point for gold is UNCERTAINTY IN CURRENCY MARKETS. A safety against currency crisis. Otherwise the reason for its priceros due to its emergence as an asset class seems to over-spoken. Its new for us but a decade old for the western ‘split second, pip’ investor and traders. If the currency crisis is coming it should have come when the lehman collapsed and almost the whole western economies paralyzed which was even termed immediately ‘to be a 1930 type of great depression’. If china don’t like dollar or want to sell dollar short of knows that it is going to diminish in value than why it is taking it's bond? Why it is giving loan to it. Today china is the biggest creditor of USA.
We don’t argue that the USA is omnipowerful or that the dollar will rule the world for next 100 years and more. But if the currency has to fail,these are surely not the signs of failing. In fact the depreciation in dollar helped USA to import cheap while its factories were down for a year and half due to recession. And assuming that the dollar will rise then the USA will pay less in interest for loans taken.
USA DEFICIT IS ALSO NOT NEW
USA has seen skyrocketing/gigantic deficits in its history. This is not new. People like jim rogers, buffet, mark faber have repeatedly criticizes USA govt. and fed to /borrow excessively/become debtful and print money and flood the system with money. But it should be noted that this is what is monetary economics all about. Its not that this is right. There are other proper ways. But nothing is perfect. Infact people praised fed and USA govt to save the economy from the SEVEREST ECONOMIC CRISIS SINCE 1930 DEPRESSION (we suspect if people will say it so, because the financial markets in the usa and other countries have already recovered, and as we are writing the usa dow jones is not much far from highs. Indeed this seemed to be a depression of financial markets and similarly a recovery of financial markets. After all it is a ‘financial market economy’. If it were a ‘real market economy’ such as in 1930 then the so-called 2007-08’s 1930 like of depression would have lasted much longer because that depression lasted more than 3 years until the government acted.
HISTORIC GOLD PRICE-CHARTS:
1975 2000.
1980-2007.
Started rising in 2002 till date.
