Picked up 2 .99999 Maple Leafs when gold was under $760 today. (My first gold holdings)
Where does everyone think the price of gold is going?
It blows my mind that it was the Fannie-Freddy news that sent commodities down. The inflationary mechanism stays intact a while long and thats bad for gold?
Even if we are in a commodity bubble already I don’t see how that news can weaken gold.
Yeah it’s a bit bizzare. Maybe everyone is anticipating a Japanese style recession (18 long years of deflation)!
With government nationalization of not just banks but the mortgage companies that those banks back (and what’s next???) I’d have to say I think a Japanese style recession unlikely. I’m picking more of a U.S.S.R. style collapse - albeit one that takes a bit longer because the US (unlike the former U.S.S.R.) isn’t actually trying to go down that road, they’re just backing up there shivering away from the communist monster that is their banking system… which keeps investing in bubble after bubble and getting itself into such a pickle that it has to hand all it’s “assets” (i.e. bad debts) to socialist central controllers.
So far governments have purchased (this year): Northern Rock, Bear Sterns, Indy Mac, Freddie Mac and Fanny Mae. There are any number of banks on the verge of bankruptcy to add to this list though, and maybe a couple of big insurance companies too. Maybe the government could go into Airlines and Automobiles as well. GM could use a handout - heck are they “too big to fail”? Perhaps if a bank had invested in their bonds, overvalued them and sold them off in highly leveraged complicated financial instruments they just might have been the counterparty to too many derrivative positions to be allowed to fail. Hell, the banks could do that with more or less any form of debt they please and, in the current market (one of moral hazzard) they have every reason to do so. When business goes well their profits are multiplied and when business goes bad (after they’ve used those profits to highly leverage themselves elsewhere) they throw up their hands and say “Just kidding, I never really had the cash - talk to uncle Sam, he’s got my tab”.
And so it goes, with all the money ending up in the middle. When Sam’s got it all though, we’ve got what Mises would refer to as a problem of Economic Calculation in the Socialist Commonwealth (the commonwealth, you will note is the United States in this instance). I’m not sure what that says for the price of gold, but it sure didn’t do russian rubbles any good!
Edit: for some reason my posts are being placed in the wrong thread.
I think the banking troubles mean that banks are less able to create money. Less money in circulation means less going around to bid on metals.
The five year MZM chart shows that the money supply has ceased to increase lately:
Right, but we already knew that.
I was more asking how this bail out is bad for gold.
I think over the very long term, gold is a good investment. You should always keep some in handy, especially in today’s age fiat money and geopolitical uncertainty. However, I do not think gold, silver, and commodities are going to do well for the next couple of years. I know this isn’t really the site to discuss technical analysis, but I’ll go ahead and dish a few observations out: gold prices are below both the 50 and 200 hundred day moving averages and it is well below the crucial $850 level. Also, the dollar and gold prices tend to have an inverse correlation. Whenever the dollar goes up, gold usually goes down. I do think that gold is oversold at the moment and prices will bounce somewhere around $730 (that is an important number because gold made an intermediate top back in `06 at that level).
News rarely makes a lasting impact on prices. That goes for any sort of investment class, whether its stocks, bonds, the dollar, real estate, etc. It’s investor sentiment that drives prices.
I think your best bet is dollar cost averaging, that way you’ll catch both the ups and downs. There are a few services that offer something like this.
As they said: on the long run gold is always a winner. So just hold on to them for now.
To say that right now the commodity market is in turmoil would be an understatement: personally I think that without external intervention (be it government meddling affecting supplies or manipulated news influencing investors desperate for a quick buck) the whole commodity market would litterally take a nose dive to readjust prices. Every single commodity right now is considerably overpriced, even when inflation is taken into account. The fact that not even that offensive saber rattling over Georgia could drive prices up speaks volume.
Overpriced relative to what? Dollars? Stocks? Housing? Bonds? What do you think will gain value relative to commodities and what’s driving the value of that other thing which will go up relative to commodities? It sure ain’t scarcity…