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Everything which glitters is not gold.

A rumor triggered the rise in gold prices to $1040/oz
yesterday and it was nonsense. The gossip was that Middle Eastern
countries wanted to price oil (black gold) in terms of yellow gold
rather than the dollar. This has been bruited by Hugo Chavez but
never taken seriously by OPEC.

main reason is that there is not enough gold out there to finance
more than a day or two of the oil trade.

the greenback has bounced back from some of the low levels reached
after the Australian Central Bank started raising interest rates.
This may feed into lower gold prices. The price of gold has tended to
move inversely to the dollar in recent years.

is not the only reason for caution on gold. Another is that the
current high price may discourage jewelry buyers as we move into the
main season for buying bling, kicked off by the celebration of Divali
in India, and then followed by Christmas.

negative is that despite being headed by a Frenchman with a natural
taste for the yellow metal, the International Monetary Fund is
expected to sell some of its gold hoard to help troubled countries.

my main reason for caution about gold is that inflation is still
unlikely this year and next. The idea that loose money will trigger
inflation is based on past experience. I know that we all are aware
of the risks of saying “it’s different this time”. But we are in
an unprecedented economic situation.

I still believe that inflation risks exist and that we should hold on
to our gold stocks, and Exchange Traded and Closed-End Funds. But short-term
there may be a reversal.

is some information on who you are. About 78% of my readers are North
American, 70% from the U.S., 8% Canadian, and under 1% Mexican. The
rest of you are a varied lot with around 2-3% each coming from
Singapore, France, Spain, and Germany. We have further readers in
Britain, Ireland, Sweden, Italy, Egypt, Jordan, Saudi Arabia,
Portugal, Venezuela, Malta, Thailand, New Zealand, Israel, and the UAE. Our data are based on e-mail addresses and may overcount U.S. readers as a result.

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