Two sides to gold - bullish and bearish - for those of us that still own gold it's important to be aware of both. You then stake the claim and hope you are right...
A friend of mine bought a home for $300,000 ten years ago. By 2007, the price of similar homes in their neighborhood had tripled in value.
During the period when the price of housing was rising so rapidly, banks were criticized for collecting deposits in one impoverished area of the country and lending it out in other more prosperous regions. The quality of the loans was not a factor, the equitable distribution of loans seemed more important. People all over the country were ecstatic over their increase of wealth through home ownership.
The government, in spite of everything, had created Fannie Mae, Freddy Mac and everything possible to increase home ownership. Practically no one was telling homeowners to liquidate their homes. Construction of homes was booming, millions of people were employed in the sector and no one dared to stop this lucrative bubble.
When the house I mentioned above was purchased in 1999, it would have taken approximately 1000 ounces of gold to pay for the home. Today, it would take only 250 ounces of gold to buy the same $300,000 house. Housing prices have “crashed” and gold has soared. In effect, gold has gone from $350 per ounce in 1999 to $1300 per ounce today.
Gold is basically a useless commodity. The price is a “bubble” that may sustain itself forever and ever, but it is a bubble. You can’t eat gold, it’s hard to carry, it earns you no money and its industrial uses are limited. Again, no one dares to tell people to sell their gold even though you can now buy it in vending machines. No one would even think of telling the mining industry to stop the production of gold, for fear of destroying yet another industry that is the primary source of employment and revenues in many struggling countries. I think we are all aware of the macro reasons that are being suggested to support current gold prices.
Keynes said that in the end investing is nothing more than a game of musical chairs and that when the music stops; we don’t want to be the ones without a chair. We still own gold. The late removal of hedges should finally allow the gold mining companies to achieve significant earnings increases. When interest rates normalize, gold prices will fall substantially. In the meantime, the music continues to play...Stay tuned.
A friend of mine bought a home for $300,000 ten years ago. By 2007, the price of similar homes in their neighborhood had tripled in value.
During the period when the price of housing was rising so rapidly, banks were criticized for collecting deposits in one impoverished area of the country and lending it out in other more prosperous regions. The quality of the loans was not a factor, the equitable distribution of loans seemed more important. People all over the country were ecstatic over their increase of wealth through home ownership.
The government, in spite of everything, had created Fannie Mae, Freddy Mac and everything possible to increase home ownership. Practically no one was telling homeowners to liquidate their homes. Construction of homes was booming, millions of people were employed in the sector and no one dared to stop this lucrative bubble.
When the house I mentioned above was purchased in 1999, it would have taken approximately 1000 ounces of gold to pay for the home. Today, it would take only 250 ounces of gold to buy the same $300,000 house. Housing prices have “crashed” and gold has soared. In effect, gold has gone from $350 per ounce in 1999 to $1300 per ounce today.
Gold is basically a useless commodity. The price is a “bubble” that may sustain itself forever and ever, but it is a bubble. You can’t eat gold, it’s hard to carry, it earns you no money and its industrial uses are limited. Again, no one dares to tell people to sell their gold even though you can now buy it in vending machines. No one would even think of telling the mining industry to stop the production of gold, for fear of destroying yet another industry that is the primary source of employment and revenues in many struggling countries. I think we are all aware of the macro reasons that are being suggested to support current gold prices.
Keynes said that in the end investing is nothing more than a game of musical chairs and that when the music stops; we don’t want to be the ones without a chair. We still own gold. The late removal of hedges should finally allow the gold mining companies to achieve significant earnings increases. When interest rates normalize, gold prices will fall substantially. In the meantime, the music continues to play...Stay tuned.
But the gold goes up and up, how can one not follow?
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