Friday
Good piece by Jeff Randall today on what the rapid rise of gold implies. Gold at $1,000 an ounce looks eminently plausible. Mind you, there is a fair bit of speculative froth here. I like the fact that Jeff, who must have felt very out of place during his time as a journalist for the BBC, approvingly quotes F.A. Hayek's views on banking and gold.
Let's not forget that Gordon Brown, you know, that clever chap from the University of Edinburgh, once a centre of the Scottish Englightenment, flogged Britain's official gold reserves for a mere $275 an ounce. Vote Labour!
I liked the comment on Samizdata a couple of months ago likening Brown's intelligence to one of those "overpriced late nineties tech stocks" - this comparison being particularly apt when commenting on his incredible achievement at spotting the near bottom of the gold market and choosing to sell. I have no idea why the media holds fast to this ridiculous idea that he is some kind of genius; a history degree and a dissertation about some obscure Scottish Marxist does not a genius make. Other than that it seems largely based on a caricature of what we expect an intellectual to be: dark, brooding, impersonal, etc, in comparison to the supposedly light-hearted frivoloties that are Tony Blair or David Cameron.
I'm no fan of the latter two, but do feel it somewhat unjust that they are - for whatever reason - viewed as bigger airheads than the speciman currently residing in Number 10.
Posted by James at January 18, 2008 03:56 PM
Is there a mechanism to short gold like you short stocks?
Posted by Phelps at January 18, 2008 04:49 PM
The boom in the gold price is partly as a result of its desirability by a growing middle class in China and especially India.
Another way of looking at gold at $1000 an ounce is that the dollar has fallen so far that it is only worth 1/1000 of an ounce of gold. The same goes for oil challenging $100 a barrel.
The USA can and probably will print more dollars to bail its economy out of the excesses of the property boom and subsequent credit crunch. To some extent, oil producers can pump more oil. It isn't so easy to find more gold. Those are the fundamentals behind the value put on gold. Build in a bit of speculative trading (ok, well a lot then) and you could easily get $1000 gold.
Mr Phelps, you can short gold by spread betting. Just be careful. Markets often overshoot fundamental values by a long way before calming down. Remember tech stocks, buy to let property, and so on.
It is easy to lose a lot of money by being correct about the value of something but at the wrong time.
Posted by Wolfie at January 18, 2008 05:14 PM
I see where you're going with this. Maybe Brown's not as daft as he looks.
Posted by Billy at January 18, 2008 05:27 PM
Is there a mechanism to short gold like you short stocks?
Futures and options always give this option, if you have capital that is truly disposable and a very strong tolerance for volatility.
Posted by R C Dean at January 18, 2008 06:43 PM
Is there a mechanism to short gold like you short stocks?
Of course! You can short any commodity. Simplicity itself.
Posted by Perry de Havilland at January 18, 2008 06:47 PM
The genius in Gordon Brown's sale of gold lay in the fact that he announced beforehand .Just because the geezer could say " neo-classical endogenous growth theory" does mean that he could not lose his ,or rather our,trousers.
Posted by Peter at January 18, 2008 06:55 PM
Phelps, I hope you take the excellent advice given on how to short gold. Short covering rallies have been very good to me over the last 5 years, and if you think $1000/oz is the top, then why not put your money where your mouth is?
Good luck with your investing.
Posted by John East at January 18, 2008 07:15 PM
This advert is going to run in the Wall Street Journal in the very near future, I don't yet know the exact date:
http://www.gata.org/files/GATA-AD-01-14-2008.pdf
As far as I'm concerned GATA are the good guys.
Posted by Paul at January 19, 2008 10:09 AM
James, the remark about Brown being like an overvalued tech stock in the 90s was mine! I rather liked the analogy and it is getting more accurate all the time (no need for false modesty).
Several people have asked how one profits from when gold goes down, ie, via short-selling. Unless you are very rich and have a brokerage account which gives you the right to trade futures and options or physical gold, it is best to use spread-betting accounts with people like City Index or IG Index. By spread-betting, the punter only has to put up a tiny fraction of the stake. You can set up an account online and punt the price of spot gold or futures in this way. Basically, you enter a contract to sell at price X and close out the contract at a lower price, and profit on the difference. With all such things, of course, punters should protect themselves against an adverse price move by arranging to close off a bet at a pre-arranged price.
Posted by Johnathan Pearce at January 19, 2008 10:34 AM
Wolfie the property boom (and other examples of the malinvestment credit bubble) in the United States was caused by Alan Greenspan's expansion of the money supply.
If the United States responds (as it looks like it is doing) by expaning the money supply even more, then it is truly......
Well I must remember that ladies could read this.
Posted by Paul Marks at January 20, 2008 09:30 PM
