Investment-blog.net: Stocks, Emerging markets, Bonds, Currencies and Commodities

Factors are favorable for gold

Aug 25, 2008 Investment Opinions

Can you consider a 20% price drop in gold a sign of a bear market? All historic data would disagree with this analysis. I think Wall Street Stock pickers have to come in terms with the idea that a secular commodity bull market started in around 2001.

1. If this is the end of this bull market, this would be about 40% shorter than the usual secular commodity bull market.
2. People who trade commodities on a regular basis understand the risks of high voletility in this market. 25% corrections are very healthy retracements in these markets. Like in the case of gold, in the 70s gold retaced at least 4 times at least 25% (at one point 48%) before it reached its peak.

The best way not to lose sight in tradind commodities (especially for gold) is to look at the current fundaments.

All the following factors are favorable for gold:

1. Financial crisis with no end in sight
2. low interest rates around the world
3. 12.68% inflation in the US if calculated the way it was caluclated before the clinton years
4. result - high negative real interest rate in many countries
5. Having Bernanke as the Fed Chair who is Fearful of experiencing a potential depression
6. M3 (although there as some contraction lately) sitll at about 15%
7. US huge debt which will increase due to major Governmental bailouts which will be very inflationary for the US dollar. (and don’t get fooled if the US dollar starts to depreciate less against other currencies, the Euro for example experiences similar problems which does not mean that gold should not appreciate against many inflated world currencies.

Bottom line, as long as there is not only speculative talk about attempting to conrol inflation like actually sharply raising interest rates like at the beginning of the 80s, but real action, I have to continue being a gold/commodity bull.

Did you like this? If so, please bookmark it, about it, and subscribe to the blog RSS feed.

Possibly Related Posts:

• In recession or depression, people only consume food, go short Retail stocks
• The news from Fed and Treasury only signal the situation is already out of control
• Everyone has been far to optimistic about the economy. Year of 2009 will be uglier than 2008
• Perspective on “Apple getting into the chip business”
• Merrill’s Bernstein: Stay Out of Stock Market; Related: MER, XLF, ^GSPC, ^DJI

Did you like this? If so, please bookmark it, about it, and subscribe to the blog RSS feed.

Technorati Tags: 80s, Bear Market, Bernanke, Bottom Line, Commodities, Contraction, Depression, Euro, Experiences, Financial Crisis, Gold Commodity, Inflation, Low Interest Rates, M3, Real Interest Rate, Stock Pickers, Wall Street, Wall Street Stock, World 3, World Currencies

Tags: 80s, Bear Market, Bernanke, Bottom Line, Commodities, Contraction, Depression, Euro, Experiences, Financial Crisis, Gold Commodity, Inflation, Low Interest Rates, M3, Real Interest Rate, Stock Pickers, Wall Street, Wall Street Stock, World 3, World Currencies