Dear rss free blog,
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.
The
main reason is that there is not enough gold out there to finance
more than a day or two of the oil trade.
Today
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.
That
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.
Another
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.
But
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.
Long-term
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.
Here
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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
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