“Gold.” Just writing the word, reading it, and hearing it silently bang around in my head conjures up imagery of high value, great wealth. That is the effect the soft metal has on all people in all cultures. I understand why, as gold has held high value in human culture for thousands of years. What I don’t understand, though, is why the fascination with gold still is with us. What is it about gold that drives people to pay over $1,600 per ounce for it? After all, it has no productive value, other than jewelry production and some minor conductive uses. And to top it off, it is not even rare anymore. Yet, even today, bidders are pushing the price back up toward $1700. Heck, it is not as if folks could use it if the apocalypse came because most owners of gold only own the metal virtually, on paper or digitally.
My point here is: not only does gold not have any real value, it has even fallen away from its traditional role as an inflation fighter. How is it that the price of gold is rising when inflation is not showing signs of increasing? My friends, gold is a bubble that cannot hold. Perception and misunderstanding inflate the bubble and as soon as investors perceive the problems of the world are resolving and as soon as the global economy shows sustained signs of recovery, the price of gold will retreat to its normal levels, which is far below $1600-$1700 per ounce.
On the other hand, oil is a commodity that has real value. The value of oil is subject to perception as well, but that perception is based oil’s real value in society. Supply and demand have real meaning.
At the moment there is an ample supply of crude oil in the world but refined product inventories in the United States have been running below both last year and the five-year average for most of this year. In fact, distillate fuel stocks are significantly below last year and the five-year average …
Does the above suggest oil prices will jump soon? Probably not, as refineries in the US have had a tough summer, particularly with fires in California and pipeline problems in the Midwest. Additionally, “refiners are selling off inventories to avoid a surplus when they switch to processing winter blends of fuel next month.” I believe oil prices will actually drop sometime after Labor Day, as supply and demand will bang into one another, knocking the price down …
China is back in the news with its latest PMI report, and once again, the sirens are luring the sailors onto the rocks.
The HSBC Flash China manufacturing purchasing managers index (PMI) fell to 47.8 in August, its lowest level since November.
As always, though, the brightly lit marquee does not tell the whole story of the movie inside. The only way to know the full story is to go inside.
The effect of policy stimulus through infrastructure investment may not show up as strongly in the HSBC PMI as in the official PMI, as the former focuses more on private companies … unemployment levels have not yet come close to those of the winter of 2008-2009. At least 20 million jobs were lost in export-oriented coastal provinces when global trade ground to a halt then. Some estimates put the total as high as 40 million.
Trade in the day; Invest in your life …
