Not too long ago we at logicalfools had predicted that Oil would head south and crash. We had also warned everyone about America’s debt problems. No one paid any attention. Yet the inevitable happened.
Oil slowly started to slip on the back of weak fundamentals, and believe me when i say this, there is plenty more room for oil to go south. We need not talk much about the debt crisis of the USA and its defaulter status.
We must however warn you about the craziness of the prices of the most sought after commodity in the world. Yes, ladies and gentlemen, Gold is not worth it and a word of caution has been given to all of you savvy enough to understand.
Where do you run when the super power is falling from grace? Obviously a commodity in which you can feel the safety, you so long for. Why then does it have to be Gold?
We have seen when the dollar weakened the prices of oil jumped. It would have continued had the feeling of despair in the economy not shown signs of inherent weakness. Now that we are all very clear that the largest consumer of the world is no more in the reckoning due to its heavy indebtedness, lets move on and leave oil to slowly find it’s place in the world markets. Trust me when i say $ 80 is not the right place. A lot cheaper is yet to be had.
So the champions of investments would have you believe that the next best investment in the world is Gold. Now for a minute if i were to buy that argument, i would first like to know what utility this gold will actually have for me besides me making jewellery. Keeping the bars under custody of lockers and banks will make me poorer just paying the fees year after year.
How is that of any sense, that reminds me of the time when the Swiss used to charge money to keep your money in their banks instead of paying you for it. The Swiss soon learnt this would not last for ever and it didn’t.
Coming back to the fundamentals, Gold as a commodity is priced in US Dollars. Therefore the current run up due to the weakening US economy has given speculators room to jump the ship and spiral prices north.
They have no clue where else to invest so what do the fools do, jump to the good old commodity Gold. Gold in itself has no utility as i have already explained. People especially investment minded individuals like to keep money liquid hence speculative. This can cause disastrous as we recently saw Trillions of Dollars wiped out in a day.
In August 2009 Gold was priced at $980. It has moved up to $1700 a rise of 75 % from two years ago. For simplicity i would like to take the relationship of the US Dollar with the Australian Dollar and the Canadian Dollar in the same period.
In August 2009 USD $ 10,000 could buy CAN $ 11,000 and AUS $ 11,760. However today USD $ 10,000 can just buy CAN $ 9600 and AUS $ 9,523.
People in Canada can today buy the 49 % of the gold they could two years ago, and Australian can buy 60% of the same bullion they could two years ago. Both the Canadian and Australian economies have held their own vis a vis the US economy.
Keeping both statistics in mind it is rather clear that Gold has been over done by a mile and a half, if there was to be a loser there surely there had to be a winner. In this case the commodity has gotten dearer and no one has benefited.
While talking to Gold merchants it is very clear they are not selling the commodity in their shops. Every day gold shoppers are moving into other precious metals, again clearly indication that it is a bubble getting ready to burst. If people who normally buy gold to wear or to give at weddings are not the buyers, and the only takers are Governments and speculators who want to keep it in vaults i highly doubt to its utility value very much.
Most of you will probably argue if not Gold then what? The answer is very simple. Investments and the arena in which we operate is changing rapidly. The old tested and tried models are being replaced, however common sense is the last thing on investors mind.
You have to put your money where it will grow, or at least can grow at a later stage. You can’t invest in a place where you have no real returns. The safest havens for investments believe it or not is in agricultural land.
Food scarcity is something which can only be countered by production, which can only take place on land. Therefore even if it is not productive at this stage its real value can never be undermined for the future.
Gold as i call it, is a fools play, only time will tell when people will have burnt themselves in not so distant a future. Happy Investing
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.