Archive for November, 2009

GOLD

Wednesday, November 4th, 2009
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As I start writing this column, gold is trading at 1,065 USD per ounce. Where is it headed?

My answer, in short, is: further up.

Of course, there could be - and there will be - corrections from time to time, perhaps 5 or 10% down. But I personally am betting on gold, and my advice therefore can only be to do likewise.

Why am I holding gold at a time when inflation is not a current threat? Basically, there are two reasons.

First: Country by country, the developed world is slowly but steadily going bankrupt.
Official debt measured against GDP is approaching 80 to 100% in many places. If we include unfunded government obligations such as social insurance, pensions, healthcare etc., the level of debt approaches double the just stated figures. The fact is, nobody will be able to level such monstrous debt mountains without massive inflation.

Second: Banks in the US and Europe are still carrying trillions of dollars and euros in bad debt and a lot of paper assets floating around are basically toilet paper. Why should we lend out our money to potential deadbeats at ridiculously low interest rates? Why indeed?

I don’t know where the gold price will be in 3 or 12 months from now, but I’ll hold on to my stash at least for the next few years, if only to be able to sleep better during tumultuous times.

Regarding equities, I only repeat my observation that we are in a prolonged period of volatility, and this calls for alert trading. Buy the dips and sell the highs. There might be a major shock coming along at any time, therefore it’s necessary to keep a relatively large cash pile for emergencies or as yet unforeseeable opportunities.

I don’t buy the Chinese success story at all. In my opinion, it’s just a bubble which has been created by the government’s injection of a few hundred billion dollars into the economy. After most of the government stimuli there and elsewhere have been removed, the souffle will deflate again. I see 2010 as a very difficult year for most economies.

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