Sunday, November 9, 2008
Gold around the world
Gold is a currency. Gold is money. Gold is traded by the currency desks at big financial firms, not the commodity desks. Sound money not backed by politicans in a time of financial crisis is always a good idea. Because gold is priced in U.S. dollars, the recent strength in the U.S. dollar has made the gold price correction steeper than in other countries. And make no mistake about it: the recent move in the U.S. dollar is a correction within a longer term trend of devaluation, not the start of a new bull market (i.e. a "bounce" that is countertrend to the primary bear market). Bull markets do not rise so fast and furious in their early stages, but corrections are often violent and fast.
Below is a monthly chart of the U.S. dollar and an indication of where I think we are in this correction, which could potentially last another 6-12 months.
Gold, on the other hand, is a currency undergoing a normal and healthy bull market correction. Remember, cash that pays no interest is not a way to "get rich quick" except in very rare circumstances, but it is a way to preserve wealth. Let's see how well gold has done in this regard during the recent market turmoil for citizens in some other countries. Keep in mind that global markets have lost 30-50% of their value over the past few months just like ours have and many markets have been hit harder than the U.S.
Buy some physical gold, secure it, and forget about it for a few years. You won't regret it.