Monday 8 December 2008

Gold in 2009: Bullish or Bearish?

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?


Steven_L said...

Surely when you take into account the exchange rates gold is worth just as much now as it was at it's March peak?

I think that if the governments are going to print money, common sense says 'buy gold' but the markets seem to be in a state of panic so common sense doesn't come into it.

If you fancy a punt why not just bet on India to beat us at cricket? William Hill will give you a 40% return on your money!

CityUnslicker said...

they really have those odds on india? Must check tomorrow...

Letters From A Tory said...

I think that whatever Gordon Brown does with the UK's gold, I'm doing the opposite.

Anonymous said...

Maybe my views are more emotionally than logically driven, but I'm trusting my money to gold (and some silver) rather than the Great Speculator Gordon for the next year or so. So for me it's physical gold (Krugers & Sovereigns with a sprinkling of online gold (where you keep title if not the physical stuff) in Switzerland.)

Anonymous said...

The price of gold in £ is almost at its all time high.

The price in dollars, which you quote, is lower because the dollar index is high, ie, most currencies have fallen relative to the $. (perhaps with the exception of Yen, which has risen because of the reversal of the Yen carry trade)

The current price of gold is heavily manipulated on COMEX. The London daily setting is done in total private.

I have previously given you quotations from Eddie George, ex governor of the BofE, relating to previous Central Banks manipulation of the price of gold. There are various methods, shorting the paper, leasing, loaning...

The COT and the CFTC own statistics show the manipulation. Pit traders confirm it.

Anonymous said...

Concerning the future price of gold, I can do no better than quote Yves, - in the comments section of this blog


"Yves Smith said...

We are likely to have a currency crisis long before we have any risk of inflation. Various academics are saber-rattling in the Chinese media that they should be getting more out of their continued support of the dollar, and suggested such goodies as unrestricted purchases of US assets (no more Unocal turn-downs) and access to US advanced technology. I doubt that we will go along, and wonder how hard China will press the issue. If our imports from China have fallen dramatically (not at all impossible) they may feel they have little to lose in playing hardball (if they believe the dollar will tank in the end regardless, they have little to lose by calling our bluff).

I was just in Europe, and the small but very plugged in group I met with is very distrustful of the dollar, but isn't keen about any other paper currencies either. They think sentiment will switch to the Euro once we get further through the Eastern European mess (that falls in Austria's lap, which in turn falls in Germany's lap). They think the dollar goes to 2 or 2.5 to the euro in the next couple of years, but think the dollar will rise further before it turns.

The point is that too many non-US parties have their eyes on the exit as far as the dollar is concerned. Not a good sign.

I am not smart enough to know what the outcome of a dollar crisis would be, but I expect it to be ugly.

Anon again...

So, if you are asking about the price of gold in terms of dollars, since that is what you quote, current well informed brains say it will increase.
Given the situation in the UK, and the drag down that the $ will cause to the £, the price of gold will probably also increase strongly in £ terms.
If the morons in current UK gov take us into the Euro...., I don't know,... but a guess would probably be an increase in euro terms, and such would be based on the eventual inflationary overshoot of the over issuance of debt.

Should the world move away from the insanity of debt based money, i don't know.

Who knows, they may even move back to a gold standard.......

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