Gold, Gold, Gold!
September 8th, 2006
Even though the heat has fallen off slightly everyone’s still talking about Gold. It seems that no matter what country we are in, Gold is the subject they like to talk about. Especially when it’s potential girlfriends. They love talking about Gold but that’s another story.
In Australia, the nightly news displays the price of Gold and every night they are checking it. People that have never invested a cent in their lives are asking me “Have you seen the price of gold?”
I stand there thinking… “Did you see where Gold was at late April?” Try $120 p/oz more then where it is right now. But it doesn’t matter because it’s totally arbitrary to the average man or woman in the street.
At Financial Expos, the commodity traders are there in force. This is their time to shine. Their commodities have seen phenomonal growth. They pull out their little 2 year charts and show you, “Well if you bought Gold 2 years ago when it was $375 p/oz, your investment would have increase by 68% which is 34% per year.” Not quite right as compouding affect the numbers slightly but close enough.
Then it is always fun to go and see what the analysts think. Now of course what they believe (sorry I mean comment) to be true is determined by what happened last night on the markets.
One commentary discusses how Gold is the choice for hedging against inflation. Did anyone see what happened to the price of Gold when figures from the US got the entire market nervous about inflation?
If you didn’t see what happened… check out Gold’s highest point in the last 6 months. Then check out what happened the 4 weeks after the high point.
Bombs start to fly in the Middle East. Gold starts soaring! Iran’s President Mahmoud Ahmadinejad, if he’s talking Nuclear development continuing, the markets are watching Gold go for a ride. Gold has the world’s attention!
How much would you pay for this rock?
So my question is, where is Gold going? What price are we going to be watching Gold go to this time? The highest price prediction we’ve seen is of Gold going to US$2000p/oz. We have no idea where it’s going and do you want to know why we don’t know.
According to the International Monetary Fund (IMF), in 1976 the average price of gold was US$128.70 p/oz, five years later the price had risen to an average of US$482.50 p/oz. That’s an increase in price of 374%. The gold reserves had only dropped in by 6%. There wasn’t a big difference in supply at all.
In 1986 the average price for the year was US$344.75. So there was a significant drop in price however supply remained steady with less than a 0.1% drop in reserve quantities. Jump forward a decade and supplies have dropped by 10% over the decade the price remained steady over that period. Leap forward again to the present day and the price has skyrocketed but the reserves actually contain more gold than it did in 1996. It is patently clear that Gold is erratic but because it glistens it attracts everyone, even if they don’t understand it.
Are you interested in Gold and its performance? Or is it a sideshow that distracts people from real investment?
September 8th, 2006 at 4:35 pm
In addition to the post, it is interesting to see the correlation between oil prices and proven oil reserves. I’m sure The Pit will mention it at a later date
September 9th, 2006 at 7:32 pm
As a broker I am interested in Gold for purely profit reasons. If I couldn’t make money from it I would have no interest at all as it is so erratic. And yes, it is a sideshow, less so than oil
September 10th, 2006 at 7:43 am
I understand why you trade Gold for profitability but the fact it is so erratic would make it difficult to make consistent profits from it. Doesn’t that make it hard to trade it?
September 21st, 2006 at 6:23 pm
The beauty of gold is in the eye of the beholder. Many are taken aback by the shine. To me I see cheap jewellry
September 22nd, 2006 at 1:20 pm
Pity. As many see very valuable jewellry. What glitters in your eyes Russell?