A Golden Opportunity?

• Tweet
• Pin It

As everybody knows, New York is the business capital of the world.  And, like everywhere else, people in New York talk about the economy quite a bit.

Which is to say…they talk about money.

A typical question in cocktail conversations or on the golf course is, “What are you doing with your cash right now?”

That’s a bigger question now than in other times because people are holding more cash today.

Why is that?

Because many people feel that right now, there are fewer attractive investment options.

But how should one invest in the current economy?

Even though New York is very connected to business around the world, New Yorkers are still like everybody else; they don’t want to lose their money.

That’s about as basic as it gets, isn’t it?

But it’s true.

People in New York are not aggressive right now.  But, at the same time, putting a lot of cash in the bank is no good either; they pay you nothing on it.  So right now many in New York are very conservative with their money.  People are in heavy cash positions.

Cash better than gold?

Of course, the question of gold comes up.

People everywhere seem to be buying a lot of gold these days.  But in New York, my sense is, not so much.  I’m certainly not.

The price has doubled in the last three years.  It’s a gold buying frenzy out there.

There’s also a lot of talk about gold being a solution to a lot of problems, a hedge against inflation, and a whole host of other benefits.

But when you get right down to it, gold is an asset.

You should treat it as an asset.

And, like all assets, gold has a cycle.

A good question would be, “When should you buy in that cycle?”

Now, it’s not hard to figure out that the best time to buy is before an asset’s cycle begins its rise.  Figuring that part out can be a little harder.

But, after that, when an asset’s value has risen some, it can still be a good time to buy.

However, when an asset shows a real trend to its rise in price, and it has become common knowledge in the wider market, it may not be such a wise time to buy because you don’t know how much higher the cycle will go.

Gold in a frenzy

But when an asset’s cycle hits the frenzy buying level, like gold is today, you need to be very cautious.  I certainly would not be buying.  If I was holding that asset, I wouldn’t be holding onto it for very long.

Think about the housing market cycle from the years 2000 to 2006, or the technology sector from 1994-1999.

Both of those asset cycles were at their frenzy buying stage in the last year or two, and both markets crashed very hard.  Many people lost a great deal of money and the economy suffered as well.

I think that’s where we find ourselves today with respect to gold.

It’s unfortunate, but people make the same mistake over and over again.  They think that prices will rise forever.  They can’t, they don’t, and they won’t.

Gold as an asset

Where do you think gold as an asset is in its cycle?

At around $1,800 an ounce, I’ll let you answer that question for yourself.

But there are other reasons I don’t buy gold.  Gold is relatively useless in my opinion. What can you do with it?

Sure, I understand jewelry and gold’s industrial uses, but as an investment, other than coins, which is a different kind of gold investment, I don’t like it.

And since the price has gone up dramatically the past couple of years, it doesn’t make sense to me as asset to be buying.

Gold and inflation

Obviously, I understand that gold's rise in price is an expression of worry.  People are concerned about the country, the dollar, and inflation.

Gold certainly can be a hedge against inflation; but many factors can influence both the price of gold and inflation rates.  They don’t always go together.

And as far as inflation is concerned, I think there will be a gradual rise in inflation.  I don’t think it will be jumping up high very quickly, and so I don’t think gold is a good asset to hold at this time.

And, believe it or not, gold is not as scarce as people think it is.  Countries like China, South Africa and the US are producing a lot of it.

Think about this for a moment. In Fort Knox right now, the US has hundreds and hundreds of billions of dollars in gold just sitting there.

Why?

What good is it doing?

We’re not on the gold standard anymore, so why do we have it?

A lot of people don’t realize this, but if the US sold that gold on the market today, it would go a long way toward paying off our debt or giving us more liquidity.

Not to mention that it would certainly affect the gold market and lower the price of gold tremendously.

Something to think about.

All the best,

George

facebook   twitter   linkedin   reddit   email  

One Comment

1. 

   James

   August 19, 2011 at 11:22 am

   The gold held by the government in fort knox would pay our government bills for a few months. Oh boy! (sarcastically) Of course it hasn't been audited for a long while so who knows how much is there and who it is owed to? I agree with the cycles info and caution. Great point.

   Reply