Monday, November 23, 2009

Is Gold Going to the Moon?

Marketwatch has a very nice discussion about gold out tonight. It focuses much of its interest on new, large investors in gold such as David Einhorn, Paul Tudor Jones and John Paulson.

The article presents a variety of bullish arguments for gold price appreciation. These are all good arguments.

One smallish fly in the ointment is that the ETF 'GLD' has now reached all the way to 20% above its 200 day moving average, a warning point. Of course it can go higher. The public is definitely joining this move, which has turned flashy.

Assuming no imminent reversal in the upward trend of economic activity, we are likely entering a period similar to 2004, with economic growth and low inflation. I believe that 2004 was the one year all decade in which stocks (slightly) outperformed gold.

Even at this price, I still prefer gold over all other investments, but long-term EBR readers know that I was positive on it all year, including when it was under $900/ounce. Will gold over the next 5 years go up more in price than the pitiful total return from a 5-year Treasury. Likely, perhaps much more. But could gold go down by half? Yes, plus there are carrying costs vs. small interest payments for a Treasury.

Over all, though, this move in gold does indeed have moon shot potential. Fascinating . . .

Copyright (C) Long Lake LLC 2009

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