(Picture from Goldsilver.com)
As expected, gold surpassed $1,200. It has gone up $250 in the past 3-4 months, an impressive run! Peter Schiff says that in the future we'll see much larger daily price fluctuations as gold become more popular as an investment asset. The technical bugs out there say that $1,200 is the next level for gold (sort of a support level, a floor on which gold can stand on and shoot for higher prices).
Silver looks set to break through $20. It has already risen by about $6 in the past 3-4 months, outperforming gold by a long way. Even so, it is still more than 60% below its record high set in 1980. If you adjust this record high for inflation, the number will be several times higher.
Today I came across an article in the Malaysian papers on commodities investment. Well, all I can say is that if people blindly follows this investment adviser's advice, they won't make much money. His article is just scratching the surface on this asset class, and he made simplistic arguments, the kind of arguments that I was also taught to in NUS. It just goes to show how bad our education system is in preparing people to play the game of money. Anyway, he ended by saying the upside potential for gold investing may be limited, given that the world economy is showing signs of recovery. I have to applaud his careful wordings, the use of the words "may be" and "showing signs". But if you were to invest, shouldn't you be more sure?
Anyway, I will argue that there's still a good upside potential for gold. Inflated adjusted high for gold is more than $2,000. It'll be more than $6,000 if you use the older (and more accurate) way of measuring inflation. Moreover, central banks around the world have become net buyers of gold for the first time in decades. India may yet again buy 200 tonnes of gold from IMF, China is still stealthily buying, Brazil and Chile should be joining in -given that they have a minute % of their reserves in gold - and there are reports that Germany and Russia are also set to join in on the gold rush. I'm mindful of a gold bubble, but the fundamentals are just too strong for gold.
What about the US? It is staring at a real prospect of its commercial real estate and bonds bubbles bursting. When the time comes, the govt will do what it does best: print more money. There will be another rocking of the economic boat, and the whole world will pump in even more money into the system. Already, the US government had allocated $11 trillion to weather the recent financial crisis. Take this number and divide it by all the gold in the world, and that works out to around a rise of $2,200 per ounce of gold. What about inflation of this $11 trillion through the fractional reserve banking system? Yesterday, under pressure to fight deflation, the Bank of Japan pumped in another 10 trillion yen into its system, and it is still keeping interest rates at the ridiculously low level of 0.1%. When will politicians learn their lessons? They have been doing the same thing for years, with no result to show. Like Albert Einstein said, doing the same thing over and over again and expecting different results is insanity.
Yesterday, Morgan Stanley said that Britain faces a full-blown debt crisis over the coming months. Will it be next after Dubai? It is increasingly becoming a question of when this will happen, not if.
To round this up, I came across a simple phrase "Gold is such an honest money" in a book I'm currently reading. It's called Investment Biker, written by Jim Rogers. He used that phrase when describing how some Russian folks in a remote village in the former Soviet Union rushed to buy a gold jewelry that had just arrived at their village. The Soviet Union were in shambles then, and nobody wants the rubles. This scene was documented in his trip around the world on a bike in 1990. It is an exciting book, full of adventure, historical, political, social and economic education. All these translate to investment education.
"Gold is such an honest money" explains why people have been piling money into gold in the past 9 years. It is not just another commodity. We have to understand that it is the oldest, most stable and reliable form of money. Why do people still invest in this 'ancient metal' till today?
As I finish up this post, a glance across to my TV screen shows gold at $1,214.70 :)
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