Sun 12 Aug 2007
With the current and ongoing national and international market volatility, a declining US dollar and rising uncertainty on many fronts, is now a great time to shift some additional resources into gold? Are other commodities even better suited?
August 12th, 2007 at 11:33 pm
There are two ways to look at it…
Gold Bullish: Gold stocks did not go down as much as the rest of the market over the last week.
Gold Bearish: Gold did not rally despite what happened over the last week.
Continuing with the bearish case:
Credit contraction is traditionally very good for gold, but gold did not rally over the last few weeks as credit contracted dramatically. There’s an argument to be made that the non-response of Gold is a gold bearish situation — that the market sees the current situation as a monetary phenomenon that can be cured by the monetary wizardry and alchemy of the Federal Reserve.
On the bullish side of the argument, there is usually a lag between credit contraction and when gold responds.
We’re currently in a gray area where the trend could break in either direction. It is entirely possible that the Fed can solve today’s credit crisis just like they did in 1998 (and gold will drop); it is also entirely possible that the opposite is true and gold will soar.
If you want something to smooth out the volatility in your other asset classes, gold will do well. Just remember that it will go down if everything else goes up…
If you are willing to play the odds and limit your risk, now is a great time to go long gold or gold stocks.
If you want to wait for a confirmed trend before investing, you can simply wait for gold to start shooting to the upside. If it doesn’t happen, you were smarter for waiting…
August 13th, 2007 at 1:15 am
This may not help you to decide if gold is a haven in the future but I can comment that I think gold is currently trading pretty much “at value”. You can look at that two ways. One, you would be buying gold at the “right” price but, two, you can’t really tell much about where a market is headed when it’s in such a low volatility resting point. What’s right today could be anyone’s guess tomorrow as soon as something happens to change the markets view of value. I personally prefer waiting for markets to get to a place where I feel they are either over- or under-priced so that I have some idea of what direction to play. As far as I can tell, the best price for gold tomorrow is the price of gold today and that doesn’t make for a great investment. In the end, I would try to look at gold from the point of view of its own fundamentals independent of its role as a haven. If you can find a strong (weak) case for gold as gold, then that can only act as support (rejection) of your long position based on haven considerations.