Gold has been the conversation talking point for many investors over the past year. This post is inspired by a conversation at FT Alphaville on the subject. The difficulty with Gold is that the world is filled with 'goldbugs.' These are a set of people who sell gold for a living and write ramping posts or columns to boost the price/demand for Gold.
Against this are arraigned the forces of..well....not many people; there are very few bearish views to be found on Gold which makes for a one sided debate.
And yet Gold has not been an unqualified success this year, even in the most unstable times of my lifetime which would suggest a flight to safety and 'traditional' stores of value. Gold started the year at $800 an ounce and looks like ending it there or thereabouts. It hit $1000 in March (I sold then!) and went as low as $710 (I bought back in at $715). Overall, the performance is much better than equities, down 40% odd compared to Gold's level pegging.
But next year, great things are expected of Gold. The Gold bugs proclaim huge inflation from the 'quantitative easing' (printing money to you and I) now going on in the West. Yet the deflation scenario suggests Gold will not do so well, it may even suffer as it gets dragged down by the end of the commodities bubble (which is after all, what has happened in recent months).
Finally, and most intriguing, is the dark conspiracy theory thrown out by the gold bugs. In a world of fiat currency, Gold is a threat. in the 1930's it was confiscated by US President Roosevelt. There are signs that something is awry, the paper price of Gold is very different to the price quoted if you actually want some delivered. The discrepancy by the conspiracy believers' is that the the Governments of the world are holding down the price by intervening in the paper markets. They are also not printing so many coins as they used to that is for sure.
Normally I am not a great believer in conspiracy theories; but the ramping of gold in the media all this year should have driven the price up more than it has. Deleveraging certainly has pulled it down, but I find it surprising its price has traded in such a narrow band throughout such a stormy market.
Deflation should mean next year is not a 'Golden one;' but my hunch is that the economists will be proven wrong on this and 2009 will be a good year to hold gold. What do you all think?