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For more than 20 years, the price of gold did nothing. If you invested in gold, you wasted your time. That all changed with fears of inflation and hedge fund speculation several years ago.
Today, the church of gold is full of believers. What changed?
Nothing really except we have experienced an unprecedented upheaval in the global economy and financial markets. No wonder there has been a flight to gold.
The trouble is that the gold rush is not likely to last. In fact, there has been tremendous resistance for gold at $1,000 per ounce. Do you really want to buy at the top? I don't think so.
Once the economy stabilizes and we get a return to normalcy with respect to the business cycle (in other words an ending of the boom/bust period), gold will go back into hibernation. Demand for jewelry cannot absorb the current supply.
As such, a strong dollar is likely to absolutely destroy the price of gold. To me that is the far more likely outcome today.
Strong dollar, you say? Yes, a strong dollar in the U.S. despite the fear in the market and so-called potential for inflation is still the most likely occurrence. And gold isn't the only thing negatively impacted by a stronger dollar.
A stronger dollar is also impacting stocks tied to the global economy. Case in point is 3M (MMM), one of my 10 Stocks to Avoid.
Jamie Dlugosch is a contributor to InvestorPlace.com.
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Reader Comments (Page 1 of 1)
4-19-2009 @ 7:19AM
john said...
those hedge fund speculations? how about the home loan market, that hasn't destroyed credit? your are delusional about economics period.
4-19-2009 @ 1:15PM
ij70 said...
Can we petition BloggingStocks to stop publishing articles by this guy?
4-19-2009 @ 2:43PM
Jonny Gizmo said...
Just stick with your stock's Jamie. We'll see how happy you are when you have lost another 30%+. Its a long way down from here!
4-19-2009 @ 5:08PM
Shaun said...
I totally agree with ij70. This guy is making the most ridiculous dumbfounded claims of how gold is not in. He's hiding the fact that the dollar is not the strongest currency int he world.
4-20-2009 @ 5:49PM
Iridium said...
Gold holds no real value. You can't walk into a store and buy groceries with a lump of gold.
You can't walk into a car dealership and buy a car with a lump of gold.
Gold is only worth what the market says it is in a currency. If inflation runs amok you may be able to get more dollars for a lump of gold but the real purchasing power of those dollars has been eroded. The paper value of gold may have gone up but the purchasing power of the lump of gold has stayed the same or gone down.
Gold is only a tool used by corrupt hedge find managers to seperate people from thier money in order to profit from them now. That is why you are inundated with commercials for gold. If it was really worth what they are telling you then why would they want to trade you gold for your dollars.
Ask yourself that question. If gold was really worth what they say why would the holders of gold want to trade you this commodity for your dollar? They are trying to unload gold. They know that coutries are getting close to confiscating gold assets just like the US did a little less than a century ago.
4-25-2009 @ 11:25AM
Chumas Mgolodelwa said...
Point to keep in mind, you still have about 70% of dollar outside the usa. Which means the international community have a huge stake in the rise and fall of the dollar. A devalued dollar is not in china's interest. Over time yes, but not now and not too fast. So it is in most reserve banks interest to controll gold prices to suit their needs, or manipulate them for long term goals. Gold in this respect will play a key role. Second point is confidence in the financial markets. A high increase in gold prices reflects a major lack of confidence in the financial markets and spells big problems. And so far we have seen a major shake in this area that most, in my view, would love to get this one over and done with. There is plenty false hope out there, but hope it is. No one wants to go through a great depression and what the government is doing really is create hope and by doing that bring back confidence, and that is the keyword - confidence. And this word applies also to the gold situation. Gold has very little significance in the real economy or industrial world. In the past it could be melted and used in more meaning full ways, hence it had value. But not any more. And this is the one word the yellow stone share with the dollar bill, confidence. I agree it's of more value than the dollar, but that is due to fact that it is a tool for hedging and manipulating currency, but this also applies to currency in that strength in the dollar is not good for gold investors or bad performance in gold is good for currency. So if confidence, which affects gold, is revived in the real economy and maintained in the financial markets then it may lessen the long term blow of deleverage and lend some value to the markets, this could controll and hold back a high rise in gold price. This in my view is the better of the other evils, a very long little or just enough growth in the world economy, than gold spiking high and your dollar hitting bottom, which it will, and your chines coming up with some new world currency.