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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: UncleBigs who wrote (46894)12/10/2005 1:26:01 AM
From: regli  Read Replies (3) of 110194
 
>Gold's parabolic price rise is similar to many other asset price spikes we've seen. <

I disagree. I believe that the rise in gold reflects in no small part the fear of the resumption of a falling dollar. Don Coxe makes an excellent point when he brings up the falling out of China and Japan and as a consequence the likely end of Bretton Woods II.

With the luster removed from the Euro, there is no easy alternative and very few investors outside the U.S. have confidence in the dollar. In addition the weak yen has undermined any confidence in its resilience. This uncertainty funnels money into the only safe currency that has shown strength historically but also demonstrated remarkable appreciation in the past five years. As the gold market is so small, not a lot of money flows are necessary to drive the price higher. As should be obvious the small investor has not joined the party yet, just look at gold stock performance for proof of that thesis.

It is primarily smart money that has driven up gold. With weak currencies, investors in Europe and Japan are now joining the party. They are not doing it because of an appetite for risk, quite to the contrary, but because they are worried about securing their purchasing power.

The fact that gold is back in the news in a positive way only helps them remember what the yellow metal has historically stood for.

Economic uncertainty combined with a significant drop-off in production results in an explosive mixture when just about ALL the other important ingredients for a gold bull are in place.
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