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Questions on Gold

|Includes:GLD, Randgold Resources Limited (GOLD)

I have been watching the price of gold recently and feel that it is overpriced. I am far more inclined to buy a put then a call option at current prices. One economist points out:

"The July 10th-16th copy of the Economist has a lengthy article about gold. Good discussion but they miss one big point. Neither the supply nor demand for gold has changed so why has the price increased? Gold has increased in USD because the USD has dropped. Gold price increases have not done nearly as well in CAD, for example."

After reading the article and seeing that the supply and demand has not changed in the past 10 years, i'm even more surprised and confused by the increase in the price of gold. Has the USD really performed so badly? Or is it that people are willing to pay more for gold as an investment than as jewelery?

I still think that gold is overpriced - I recently read an article on Financial Times that some hedge funds currently hold more gold than some nations - for example Paulson & Co. holds more gold than Australia. As the economist article points out, people are holding gold because of the uncertainty of other financial instruments. I could imagine that as soon as interest rates go up, or some stability returns to the stock market, these large hedge funds could pull out all their positions in gold, and then...? Either way, I'm not invested in gold and there's no way for me to buy put options, so i'm really just a spectator. I'll be watching it closely. 





Disclosure: No positions in gold

Stocks: GOLD, GLD