Gold is going down. Durable goods orders are up. Housing prices are down. Oil is going up. The deficit is down. Bank of America is up. The U.S. dollar is down. Yields on Greek 2-year bonds are up. No wonder the market is both up and down day to day …
Yesterday, the market hijacked a rocket, the rocket taking gold to the moon. The market dumped gold, sending it falling back to earth. Today, gold is still falling to earth, but the rocket the market stole is wobbling badly after passing too close to a magnetized meteor that upset its gyroscope. Will the rocket crash, sending the market back to earth with gold? Stay tuned for the next episode of “As the Money Turns.”
My view of economic and market events these days is somewhat less worried than it was in the midst of the “Great Debate.” The reason is simple. Although there are big and dangerous issues out there, the market is looking to the fundamentals for guidance. True, the fundamentals are good and bad, which creates a schizoid market, but that is okay, as I understand and can analyze the fundamentals. This gives me a sense of grip, a feeling that the market might be whacky, but at least I understand why. I get it when the market moves on headlines, and I understand it when U.S. Treasuries become the safe-haven home for monies needed in the equity market.
What I don’t get is gold. I keep hearing learned folks say gold is going up because it is currency. In fact, this morning, a commentator asked an analyst, “How can you say gold is currency? Name me one place I can take gold and buy something here in America?” The analyst responded, “If you take an ounce of gold into a store, I guarantee you they will accept that gold as payment for your goods.” Just try asking for change when you buy a bag of chips.
So, this is the reasoning for calling gold a currency? This is the intelligent answer to a reasonable question? Based on the analyst’s answer, the pink slip to my car is currency. Sure, if I owe someone $50, he or she will take my car for payment because it is worth a whole lot more than what I owe.
No, it seems to me calling gold a currency is a rationale to explain its absurdly high price. The irrational rise in the price of gold reminds me of another historical era when folks went crazy over something that had no industrial value, a bauble, if you will, a pretty thing to look at. In that time, that commodity had no value other than it was a way to invest, a way to make money as the commodity went higher and higher. I am talking about the Dutch Tulip Mania in the 1630s, arguably the first recorded market bubble. In that bubble, a single tulip bulb sold for more than ten times the annual income of a skilled craftsman. That bubble, by the way, came crashing down, ruining an economy and the lives of many who bought into the idea that the price would keep on rising. Just saying …
Gold has risen meteorically on fear and irrationality, which makes it different from the tulip of the 1630s. Nevertheless, their essences are the same – a big, fat market bubble. Watch out …
Trade in the day – Invest in your life …
