gwax's rumblings

Ok inter­net, I don’t usu­ally talk finances but that’s because I don’t usu­ally have any­thing finan­cial to talk about. Today is dif­fer­ent though, today, we’re going to talk gold. Right now, gold is ~$630/ounce and I would put money down, heck I have put money down, that it’s going to be worth more. Now, when I say that gold will be worth more, I mean a lot more. The greedy reader will now being ask­ing where to sign up but the savvy reader will be want­ing to know where I’m draw­ing this notion from. Personally, I’m more inter­ested in the savvy reader, so here’s why gold is going to go way up.

There are three dif­fer­ent fac­tors involved in why gold is going to go up: gold is cur­rently under­val­ued, gold’s actual value is on the rise and there’s going to be a huge gold fad soon.

A big fac­tor in the under­val­u­a­tion of gold is that it hasn’t suf­fi­ciently caught up to infla­tion. The value of gold has gone up and down a lit­tle but has remained fairly con­stant rel­a­tive to the $USD since the mid-eighties in spite of a con­ser­v­a­tive infla­tion esti­mate of about 250%. On top of lag­ging behind infla­tion, gold has a very low value rel­a­tive to other com­modi­ties. Let’s take, for exam­ple, oil: since 1970, gold has aver­aged about 7 ounces per 100 bar­rels of oil but right now gold is about 10 ounces per 100 bar­rels of oil. Now, some of you might say that oil is a bad com­par­i­son because oil is expen­sive right now and to that I say that oil is expen­sive in dol­lars and that com­modi­ties prices are far more tightly inter­re­lated. Relative to the dol­lar, rel­a­tive to oil, rel­a­tive to every­thing, gold is under­val­ued right now; gold would have to get to about $1000 to be prop­erly valued.

Ignore any mon­e­tary value for a moment, gold’s appli­ca­tion value is going up right now. With China and India mod­ern­iz­ing, they will want and need gold. China and India will need gold to sup­port their boom­ing tech­nol­ogy indus­tries; gold is vital in elec­tron­ics and all sorts of other appli­ca­tions. On top of need­ing gold, China and India will want to flex their mus­cles in the world mar­ket­place, which will mean bring­ing their gold reserves up in line with the other big nations, which will increase demand and thus real value. Add to this that the con­sumers within these and other mod­ern­iz­ing nations will want gold items and you get even more value increase.

The impend­ing gold fad is where the real fun kicks in. The cur­rent US polit­i­cal cli­mate is mak­ing peo­ple fear for the future of the American stock mar­ket and US cur­rency, which his­tor­i­cally has dri­ven peo­ple to be inter­ested in the com­modi­ties mar­ket where they can buy real things, like gold. Gold has been show­ing very solid growth since 2001; it’s up %100 in the past five years and that tends to make peo­ple say, “ooh.” More than any­thing else, though, there’s been buzz about gold in places fre­quented by the every­man; it’s not a secret any­more. I may not be ter­ri­bly “hip”, or “with it” but I keep my fin­ger on the pulse of infor­ma­tion and cul­ture and when gold starts pop­ping up in strange places, I see it. So here’s what’s going to hap­pen: peo­ple are going to see some­one men­tion gold that usu­ally only thinks about stocks and funds or they’re going to hear about it some­where very unchar­ac­ter­is­tic, like digg, here or some other blog. Then, these peo­ple are going to look into what peo­ple are say­ing and real­ize that gold is hugely under­val­ued. Then, there’s going to be a huge over­cor­rec­tion and, before we know it, gold will be $2000-$3000/ounce before crash­ing back to $1000/ounce where it should be. This is my prediction.

On top of the fact that it’s going to be worth a ton of money, there are other rea­sons why gold is a good invest­ment choice, namely liq­uid­ity and taxes. Gold is almost as liq­uid as cur­rency and, for that mat­ter, bet­ter than for­eign cur­rency. Find a store that deals in pre­cious coins, met­als, goods, etc., walk in and buy or sell gold, that’s it. There will be a price spread asso­ci­ated with gold trans­ac­tions but it will be pretty small. Now, let’s talk about taxes; there aren’t any. Gold trans­ac­tions over $1000 aren’t taxed and that’s both direc­tions so, if you make a gazil­lion dol­lars profit in gold, that’s a gazil­lion untaxed dollars.

So, with the caveat that I’m no finan­cial pro­fes­sional and you should do your own research to see if every­thing checks out, I really think that peo­ple should get into the gold mar­ket. Further, I think you should get into the mar­ket right now or pretty much any­where up until it hits around $800-$1000/ounce.

This entry was posted on Tuesday, April 25th, 2006 at 8:34 pm and is filed under musings. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.