Friday, November 07, 2008

The Relative Appeal of Gold


Gold is unusual in that it is both a commodity and a surrogate currency. While gold's value has fallen along with other commodities, note that it has also displayed relative strength with respect to other commodities since the mid-year swoon. The chart above depicts the ratio of gold (GLD) to the commodities ETF (DBC). When stocks made their October lows along with commodities, gold's performance relative to other commodities was breaking to new highs.

While many commodities are falling due to economic weakness (oil, industrial metals), gold may be retaining a degree of interest given the worldwide race to zero interest rates--and the monetary expansion likely to ensue if those rates prove insufficient to stimulate growth.
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2 comments:

Dhiren said...

I think Gold is going high in the long run but it seems in the short to medium term, it will go down due to tremendous asset and commodities deflation that we are witnessing. Long term chart of GLD seems broken and gold equities are down from 50 to 70 percent. Also take a look at the following please:
http://www.tradersnarrative.com/a-tsunami-is-coming-but-is-it-deflation-or-inflation-2029.html

IDkit aka Ana said...

Brett

Today we have sophisticated financial models which have collapsed. The Fed has been patrolling the markets with a can of gasoline, ready to douse any flare-up. Today the House has been subscribing to the New Deal philosophy of big government spending to 'rescue' the economy.

The mistakes being made tend to dwarf those of the 1929 Depression.

The economy is heading for a Liquidity Trap, leading to the flight to Gold and other portable assets as the currency is being debased.

Hence, Gold will still be attractive as an alternative investment.