phillyslick's  Instablog

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

There seems to be a lot of optimism surrounding the start of Q2 earnings season, which has probably contributed to the 5% gain seen in markets last week. I think that Q2 earnings probably will be impressive, but does that alone justify jumping into the markets right now?  If earnings meet or even exceed expectations will the rally be enough to ensure we have passed the 2010 market lows?

I think before we all jump in ahead of earnings season we should at least pause to consider a few things:

The majority of economic reports released in the past month or so have been negative and often missed analyst expectations. Of course, these reports don't reflect the ability of corporations to make record profits, but it does paint a dreary picture of the economic climate during Q2. 

Because macroeconomics have played such an important role in the markets in the past few months, even impressive Q2 results can be crushed by a downgrade of other PIIGS (maybe Italy), or bad news from China such as a slowing housing market, or lower than expected GDP. I can't help but feel that we are at the mercy of the media at the moment - ie., maybe Samsung will report record-breaking profits, but if the media turns their focus from Q2 earnings to debt, housing, growth, etc, you can be sure Samsung's earning won't be reflected in it's share price for long.

I'm more of the buy-and-hold dividend investing type, so you wont see me trying to ride any rally these weeks ahead. If you are venturing in, I wish you all the best and would recommend you get out fast before the next 'crisis' takes hold of the media.





Disclosure: Long NASDAQ OMX hedged with puts