GOLD 0.51% $1,391.7 gold futures

pascoe does not like gold

  1. 9,081 Posts.
    Boy, does this guy hate gold: (and he's been so wrong about it before)


    "With all the present volatility in the markets, what?s perhaps most surprising is how very little gold has done. If I was a gold bug ? and I?m clearly not ? that might be a worry. Of course, the hard-core gold believers think life as we know it is coming to an end anyway and therefore are unshakeable in their strange faith.

    I have been wrong about the gold price for the past several years, but that still remains more a matter of timing than fundamentals. The major leg of the gold rally was based on a reasonable reason ? the need for those with US dollars to get out of them as the American economy and the greenback plunged.

    Since that first leg, gold has risen primarily because gold had risen. The momentum trade kicked in, the exchange traded funds (ETFs) took off to capitalise on that and the great gold bubble bubbled on. There?s an entire industry devoted to justifying the rise ? at any one time you can find people who will tell you that gold is a great hedge against inflation, a great hedge against deflation, a safe haven and a cure for baldness. Well, maybe not a safe haven.

    With so much hot money in gold via the ETFs, the continuing signs of economic recovery in the US in particular become a problem. Gold doesn?t earn any interest, it doesn?t pay a dividend, it doesn?t make anything that it can sell for more. Gold only goes up if someone else is prepared to pay more for it than you did. The unkind call it ?the greater fool? syndrome.

    That syndrome and the flight from the greenback has been paying off extremely well, but if the US dollar regains some respectability on the back of an improved economy, an end to quantitative easing and continuing uncertainty in other parts of the world, the turn could be sharp and nasty. Like any bubble, when the punters think the price might fall, the rush for the exit tends to be dramatic.

    That?s when ETFs will face enormous pressure ? and when players with such things will need to be across any counterparty risk. Some ETFs hold physical assets (shares or commodities) to back their paper, some don?t.

    What might be amazing to gold?s true believers is how comparatively little gold has done while the Middle East was becoming more volatile, let alone when catastrophe struck Japan. If all the scary stories about oil and nuclear meltdown can?t move the yellow metal much, what will convince the next fool to pay more for the yellow metal?

    Michael Pascoe is a BusinessDay contributing editor
    http://www.smh.com.au/business/buy-iodine-sell-gold-and-forget-the-aussie-20110318-1c005.html


 
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