It's very strange that the US Dollar, equity markets, and gold are all trending up at the same time. Usually gold would move opposite ("I don't trust the markets or the US Dollar so I'm going to buy gold.") The explanations I've heard mostly involve the Chinese government which is supposedly buying gold like crazy (especially on any slight dip in price) as they diversify out of US dollar denominated holdings.
But also there is a story (not in mainstream yet, but big in pro-gold - i.e., "goldbug" - circles) that involves stamped gold bars being delivered from US central banks to certain unnamed foreign banks which were discovered to be tungsten cores covered in gold. Personally I don't believe this story but I think at least some people do and that might be driving the price as well (since if it's true on any sort of large scale then there is a lot less gold than people think.)
One simple way to watch this play out is to contrast bond traders and goldbugs. Bond traders are currently betting that inflation is not an issue going forward (since, say, 10 year treasury bonds are yielding very little at the moment, and you wouldn't lock yourself into ~3 percent for 10 years if you thought massive inflation was coming.) But gold, which is a hedge against inflation, keeps going up, meaning that goldbugs think massive inflation is coming. Someone is going to lose big.
My heart says that the goldbugs are right and the US will have to hyper-inflate our way out of our debt. But my brain says "don't bet against the bond traders."
|
But also there is a story (not in mainstream yet, but big in pro-gold - i.e., "goldbug" - circles) that involves stamped gold bars being delivered from US central banks to certain unnamed foreign banks which were discovered to be tungsten cores covered in gold. Personally I don't believe this story but I think at least some people do and that might be driving the price as well (since if it's true on any sort of large scale then there is a lot less gold than people think.)
One simple way to watch this play out is to contrast bond traders and goldbugs. Bond traders are currently betting that inflation is not an issue going forward (since, say, 10 year treasury bonds are yielding very little at the moment, and you wouldn't lock yourself into ~3 percent for 10 years if you thought massive inflation was coming.) But gold, which is a hedge against inflation, keeps going up, meaning that goldbugs think massive inflation is coming. Someone is going to lose big.
My heart says that the goldbugs are right and the US will have to hyper-inflate our way out of our debt. But my brain says "don't bet against the bond traders."
- jim 12-02-2009 3:40 pm