The Speculative Downside of Gold
Today's Financial News - Posted August 19, 2008
We may shortly be at the beginning of Jimmy Carter’s second presidency. After “windfall taxes” have made a populist return, will we see 14% inflation and record gold prices again?
by J. Christoph Amberger
Baltimore — (TFN): I knew it was time for some action when I received an e-mail promotion entitled “Fannie Mae/Freddie Mac bailout to ignite huge wave of inflation sending gold to $2,200″ last week.
Its author argues that the government is already 6 trillion dollars in debt, and will either have to borrow or print money.
And that’s going to ignite a new wave of inflation that will make the late 1970s and early ’80s look like a Sunday school picnic: “Gold almost tripled back then and I expect it to at least double with the coming wave of inflation,” he promises.
With another Jimmy Carter in the wings for the White House, who am I to argue against the “history repeating itself” line of argument…
So far, however, gold is behaving just like the speculative commodity it is. Just like oil — whose realistic and immediate upside is $150, $200, $500, depending on who you ask and which plummeted $30 in the last two weeks — gold is hitting the skids right now: Today, gold for December delivery fell below $800.
Part of the reason for this temporary decline is that gold’s hedge value fell against the dollar as the greenback ignored dire predictions for the demise of the U.S. economy and actually increased to a six-week high against the euro and pound sterling.
On August 1, hard money maven Howard Ruff also reminisced about the bullion bull market of the ‘70s — when gold and silver stalled out for as much as two years with a decline of up to 30% on the way to their eventual highs of $50 silver and $850 gold. He goes beyond government debt into the $50-trillion in unfunded obligations and concludes:
“So hang in there and be patient. Someday you will brag about buying silver below $20 and gold under $100.”
I know “gold under $100” is just a typo. At least I hope it’s not a Freudian slip. But if, as Mr. Ruff implies, fluctuations of 30% and more are supposed to be accepted as standard deviation for gold, this supposed Führerbunker against inflation — I have to tell you that I take U.S. banking stocks any day.
Oil’s downside by now has been pegged at $110 and even $70 per barrel, that’s 26% or even 50% below its record high. For gold, a synchronous decline would result in prices around $750 or even $500 per ounce. It seems unlikely. But, since my gold bug friends brought up the Carter Administration… history not only documents straight increases — but horrendous drops far larger than that, all within the last three decades.
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Next Article: Euro drops on record German inflation
Posted by J. Christoph Amberger · Filed Under Featured Video, Gold and Resources, Videos
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