phillips49

The Bedrock Case for the Return of the Gold Bull

The is no arguement that the US financial system is stressed. However, this does not mean that gold is a safe haven either. There are those that would say, it's different this time, but looking at the history of gold prices though booms and busts over the last 30 years, gold is a lousy investment and certainly not a hedge against inflation. Gold was flat from 1981 to the end of 2004. (23 very long years) It lost ground against inflation all during that time. If you bought gold at $400/oz in 1981, then to have just even purchasing parity today, gold would have to be $1,150/oz. In 2005, gold began to climb. So what happened ?....A period of enlightenment? ....No, actually, the introduction of gold ETF's happened in the 4th quarter of 2004. Everyman suddenly had access to gold if they wanted to play. The ETF itself actually created an artificial demand for the metal that wasn't there before. The current price is sustainable only if sellers don't out number buyers. In other words you are dependent on the guy next to you to hold and not sell. Until of course you get scared and decide to sell yours first. Investors have been fleeing all asset classes, including gold.
It is also a mistake to liken gold to currency. The governments of the world won't let that happen. And they will conspire together to make sure it doesn't happen. Gold will never be accpted as legal tender in the grocery store. It will always have to be converted into paper. They own enough gold, that if even partially sold, would drop the price of gold into the last century. If you bought a 1000 shares of GLD, this summer when the hype was high, say at $90.00, then you're out a lot of money in a very short period of time. What has inflation done in the last one month? It sure didn't rise 14%. I'm not anti gold or a nay sayer. It just is what it is!