Monday 12 November 2007

Poll Results: Buy Gold

Last week's poll was a question asking what investment asset class makes the best sense in the current environment? The final numbers are in below:
7 (38%)
3 (16%)
6 (33%)
2 (11%)

I was not that surprised to see that Gold took a lead here. It's real price has been soaring in recent days and is over $800 per ounce (As I write today it is nosediving, typical!). It started the year at around $600 so any investment will have reaped strong rewards so far.

Shares/Stocks too in the West have suffered at hit already with the tech bust and the ratings are not so high on them that a huge correction is likely, according to the market bulls at any rate. However, investments in China and South America are going to have to be well timed to escape with the profits. Goldman Sachs I see has already been liquidating assets to book profits in these regions.

Very few people voted for commodities and this did surprise me. There is huge demand in the world and sovereign funds are going to suck up supply. As much as prices are high, so is demand.

Which leaves cash as the orphan. If I had some cash I am sure I would know what to do with it, but I don't. At this very dodgy moment in the economic cycle though it shows what bulls the readership here is.....

PS I voted gold.


Nick Drew said...

Agree that a vote for Shares at a time like this suggests a bull, CU - but for Gold ?

My vote - for gold, like yours - reflected something quite different ! ( = been reading too much Sackerson ...)

Sackerson said...

Surely not, Nick. But the gold bugs have done all right so far, haven't they?

Personally, at this stage I'd suggest (a) settle debts that could be called in without much notice, (b) hold cash, since you'll get bargains in all sorts of ways when the system starts grinding to a halt.

But maybe this means shares will boom, instead.

Go long crystal balls.

Nick Drew said...

If there's to be a run on B*r*l*y*, Sackers (*sshhh*), cash may need to be held in the form of wedge

loadsamoney !!!

Old BE said...

Perhaps cash but not dollars, sterling or euros. The Chinese must be nearly ready to let the Yuan float to stop oil prices getting out of hand and to curb inflation?

Steven_L said...

What's that Nick? You've been shorting Barclays?

I was interested to read in the ST that British banks can account for their dodgy debt derivatives using a fair weather price whereas the US investment banks (that aren't really bansk apparently) have to show what it is really worth.

Does this mean that no one will believe Barclays and RBS even when they do reveal smaller than touted losses?

CityUnslicker said...

Well, I am a bull in some areas like commodities and gold and a bear in others overall...

Ed, you will do well to buy yuan, also even a good appreciation is unlikely to be more than 20% over a year or so. A good return but not great. People who make their money in currency are playing with billions, literally.

ST - I am not so sure about this. In the UK we have mark to market, which was a more stringent test thatn market to value that they have in the US. if anyting our banks will have less exposure except HSBC which owns household, but HSBC is the most conservative of the big banks and will probably have washed all its linen by now.

Although I love the phrase that was used in the article, mark to make believe.

That one is up there with back 2 Banking and Back 2 Consulting!

Old BE said...

Unfortunately, this is all theoretical for me as I have no spare cash. My spare income is going to repaying debts as fast as possible.

Wolfie said...

While I am a fan of a gold peg in principal I am reticent under current conditions. This is a global cross-sector bubble and gold cannot help you as positions cannot be guaranteed to be backed by tangible bullion. I am confident that gold will shortly resume its bull run in the short-term but in a bust scenario you may find governments taking "emergency" positions at the expense of the investor. I would have more confidence in basic commodities which individual powers cannot exert so much regional political hegemony over. Grain anyone?

Anonymous said...

Gold may have hit a peak for a while. There is always a danger with gold that because the market is small the dumping of gold by a government would seriously shake up its price. Then you have funds selling gold to maintain liquidity. And of course the price is largely based on speculation anyway, not entirely currency inflation, so a change in sentiment could cause problems. However, you need to consider where the pound goes from here. In my experience the UK can't sustain a high valuation against the dollar for very long. It is simply too dependent on trading with the US and other dollar pegged currencies. So if you want to bet on the UK running into serious difficulties next year and the pound declining sharply, then naturally anything other than pounds will be a good bet. I think Euros might be best, as the ECB has a tighter hold on all the relevant levers of the economy and aren't great believers in Keynsian inflation.

Nick Drew said...

Grain anyone?

That's very kind of you, Wolfie, make mine a single malt

Mark Wadsworth said...

Government-backed, index-linked bonds is the way forward.

James Higham said...

What about S&P's recent downgradings and the writedowns? Also, CUS, there is Mark to Model in the UK as well.

James Higham said...

Sorry - on that last one - I misread about some of Merryl's rivals. Is it all mark to market in the UK?

CityUnslicker said...

Wolfie - fair criticisms. it is hard for any retail traders to actually get into the basic commodities though. Hopefully there will be some more accesible funds in the near future.

Anon - Quite true re the £. I predicited a while ago it would hit new heights; and equally now I think there is a strong chance of a fall back to 1.80 or so as everyone digests the poor macroeconomic situation that we face too. A little devaluation is in order and this may wel be why the interest rate is being held at the moment; to combat the future inflation that will be generated.

Mark - not racy enough for me...

JH - Also quite true; but at least we have market to market at all, so we started in a better place...hopefully!

J.C. Ernharth said...

Does this change anyone's vote?

What is the Mainstream Missing on Gold?

That view goes hand in hand with this analysis:

More Liquidity Dropping on the Dollar Debt Note

No doubt, the Chinese are taking it on the Chin with the dollar, but I can't imagine the dollar not getting a touch of a breather.

Problem is with the new accounting rules being uleashed on the U.S. (FASB 157) you're going to see a fresh level of loss exposure -- estimates are as high as $500 billion.. Add to that a looming commercial real estate bubble that's starting to feel its own problems relative to insolvency (much like the housing bubble started feeling it gain momentum about 18 mos ago) and suddenly the world starts remembering that the dollar is a promise actually backed by overvalued debt dependent on ever increasing credit and money supply to provide it value.

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