2008 is looking like a Golden Year
Linda says:
Financial and political crises are benefiting the price of gold.
With an ongoing crisis in the banking system, no shortage of political upheaval, especially now in nuclear armed Pakistan, 2008 is looking like a good year for investing in some gold. Precious metals were the investment darlings of the early 1980’s, but then lost money for investors for decades. The Bank of England and many other central banks sold down their gold reserves, and gold seemed archaic and only suitable for jewellery.
However since about 2003, gold has been making a comeback as an investment class. Gold may pay no interest or dividend, but it has been a store of value since the days of the pharaohs. A gold mining company may declare bankruptcy, but a gold bar cannot. And it does not have any hidden sub-prime loans on its balance sheet. It is not going to inform the market of a slowdown in construction activity. Thus it is a tangible asset and is seen as a traditional inflation hedge.
In the unstable Middle East, and among the newly prosperous classes in India and China, investment in gold is rising both as an inflation hedge and a traditional store of wealth. After losing money on complex mortgage related investments, the appeal of precious metals is also expected to rise in Western countries.
The US at the moment has negative real interest rates (treasury bond 2 year rates are less than the rate of inflation), which traditionally favours gold. Even one of the US presidential hopefuls, Dr Ron Paul, has been advocating returning the currencies to the gold standard.
If you are interested in putting some money into gold, it is prudent to start building a position shortly, before the rise is in the gold price is on every magazine cover. Gold shares are correlated to the price of physical gold, but also negatively impacted by any form of stock market correction. Rising costs for machinery and labour are impacting the gold mining shares adversely.
And Osama Bin Laden putting out a “Christmas message” urging more mayhem and strife, benefits the precious metals dealers (as well as the arms dealers, of course.) Gold was up 30% in 2007 and 2008 is likely to be a very good year.
