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Strategies & Market Trends : Ride the Tiger with CD
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From: koan7/24/2008 3:29:55 PM
  Read Replies (1) of 313427
 
NC, this guys introductory paragraph is based on a distorted premius.

The standard refrain is this: "Gold is an inflation hedge." The problem with this refrain is 1980–2001. Prices in general doubled, but gold’s price fell from $850 to $257. The only investment worse than gold was silver.

koan: Here is the problem with that statement. the doubling of prices was slow and the variables correlated with gold were running counter to high gold prices e.g. dollar strength.

Inflation rose from 1975 to 1980. Two things seemed to cause that rise. LBJ's Guns and Butter deficit spending and oil rose form 2% of GDP to 8% of GDP.

From 1981 to 2001 inflation dropped back down to 2/3% after the feds crushed it with 20% interest rates and oil dropped back down to to 2% from 8%. So this period lasted for 20 years along with a strong dollar.

In 2001, just as bush was elected the dollar started to fall (92% inverse correlation betten dollar and gold), profligate world spending and worldwie cration of liquidity lead by the US fueled the rise of asian demand and huge twin deficits.

In 2004/5 oil started to rise again as a percentage of GDP from 2% to 8% again and inflation and gold have risen with it.

Oil is now projected to go above 8% GDP, so if oil continues higher, inflation should persist and gold should rise.

BWTFDIK-lol.

Cheers,
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