Nikola

Gold ETFs: What Went Wrong With Conventional Wisdom?

Cash is like an ETF, it represents an underlying value, but it also is influenced by supply and demand (btw, cash also provided an alpha of 0%, and gold really didn't, because some people bought it at $950).

Supply of cash from banks has dried up (credit freeze), and as someone pointed out, demand for it has only gone up since the stocks are in the gutter. So the price goes up.

In the past few years, dollar was purposefully allowed to depreciate in order to keep the economy going, as the current regime was working on otherwise wrecking the economy (borrowing, wars, tax cuts, deregulation, plundering...) This made other currencies (mainly Euro) become dangerously overvalued in comparison. When the world financial system started to collapse, Euro is now catching up, and that's what's keeping the dollar from falling further (relativelly). For the time being.

As someone else also pointed out, the various bailouts (is anyone keeping count?) have or will pump trillion of dollars of cash into the system. Which is not showing up because, well, it hasn't really been injected yet, they just say it is, it takes a bit to print 10 billion one hundred dollar bills and distribute them, and also the banks are still sitting on their cash. Once the banks relax and start moving their cash again, well, then we'll have too much money out there. Which will cause inflation.

You will know that is happening, if not sooner, when you see the Fed raising rates dramatically, and making banks keep more in reserve. That's when Gold will go up.

If you think about the timing, think about the economy as a tanker. The captain fell asleep at the wheel... and is now trying to change direction. It's going to take a while for some of these bailouts to work -- for the tanker to actually start going in a different direction. Right now it's just SLOWING DOWN going in the wrong direction, but it's still going in that direction still (as we saw last night).

A number of people talked about the recovery happening in Q2 2009 or so. I think that's about right.

I don't think anything exciting will happen with gold in 2008 (maybe sucker rallies?)

Someone mentioned gold price manipulation, and unfortunately there appears to be some of that as well, but the price can only be manipulated for so long. Once the pressure from the economy comes, though, there'll be no manipulation possible from stopping the price going up.

To buy gold now or not? It's a fairly safe investment, assuming you don't buy into some sucker's rally. On the other hand, it's unlikely it will go up to $2000. The Fed does have tools to soak up the extra cash, and keep inflation in check. Assuming they don't fall asleep at the switch.

McCain said he would fire the SEC chief. I agree. I would also replace Bernanke. It's time for him to go.