Tuesday, May 02, 2006

Really Tangible Assets.

This isn't a good sign. Gold at a 25-year high, with the price for an ounce floating somewhere above $650? Investors talking as though $700 was a reachable price in the near future? Only a year or so ago, I remember gold hitting $400 and $450 and thinking that it had to be an aberration: some investment fad or short-term hysteria that was driving up prices. I hadn't paid much attention since then, but $650 an ounce?!? Uh-oh.

My grandad claimed that rose quartz was a good indicator for gold when prospecting, if that helps anyone.

Updates below the fold.
Was it rose quartz in particular or just quartz in general? Anyway, it's problematic advice because there's a whole bunch more quartz out there than there is gold.

What's been interesting to me is a number of markets in which rich people park cash seem to have cooled recently. Edward_ has been detecting signs of cooling off in the art market. The real estate market is cooling. A couple of companies like Microsoft have actually started issuing dividend checks, for lack of better investment options for their profits. These are all signs that wealthy people with excellent financial analysts at their disposal are very nervous about the future.

The astronomical rise in gold prices is terrible news in that regard, because gold used to be considered an investment of last resort.

Sure, there are speculators; you can buy into gold-indices that give you a fraction of a gold bar owned by some bank somewhere, and if prices continue to rise the way they have been, that option might make sense for piggybackers.

But, still. The reason people buy gold, usually, is because they want a fail-safe currency against a financial situation they see as unstable. In other words, if $650 is a quantity that might not mean very much in a month or so, you'll always have an ounce of gold, which historically has been wealth to reckon with.

Maybe this is price-driven speculation. God, I hope so.

[Update 2: Do look at this post from The Cunning Realist, a Wall Street guy. An excerpt:
This is excess liquidity coming home to roost. While the Federal Reserve continues to raise interest rates to mollify foreign central banks, it’s made it clear that any weakness in either the stock market or the economy will be met with massive infusions of liquidity, and dollar-denominated debt will be inflated away. The world is waking up to this, which is why oil and gold march inexorably higher and the long bond is tanking. This is inflation, and the rest of the world is acting accordingly.


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