Sunday, November 29, 2009

What Gold Frenzy?

"'It could be your grandmother's gold or the gift of an ex-boyfriend,' said Erhard Oberli, the chief executive of Argor-Heraeus, a major refiner [in Mendriso, Switzerland] that processes roughly 400 tons of gold a year. 'Gold doesn't disappear.' ... Long considered the ultimate refuge for nervous investors, gold has climbed as the dollar has steadily weakened, budget deficits have expanded in the [US] and Europe, and central banks have continued to pump trillions of dollars into weak economies, creating fears of another asset bubble that will ultimately pop. ... Jim Rogers, an investor who has made his name investing overseas and in commodities, predicted to Bloomberg Television last week that gold might reach $2,000 an ounce--prompting a rebuke from Nouriel Roubini, an economist who gained attention for his early warnings about the global economic crisis. At a conference in New York on Wednesday, Mr. Roubini described Mr. Roger's forecasts as 'utter nonsense,' saying that there aren't any inflationary or economic pressures that would drive the price of gold to $2,000 an ounce. Even the most bullish of gold lovers were surprised last week when the Reserve Bank of India stepped in and bought 220 tones of gold from the [IMF] for $6.7 billion, a sign that other central banks might move away from dollar-denominated assets like Treasury bonds in favor of the precious metal. ... 'We have money to buy gold,' said Pranab Mukherjee, India's finance minister. 'We have enough foreign exchange reserves.' ... 'Gold has been around as an investment for 6,000 years,' Mr. Oberli said. 'When there is no alternative, it's there'," my emphasis, Nelson Schwartz at the NYT, 8 November 2009, link: http://www.nytimes.com/2009/11/08/business/global/08gold.html.

Disagreeing with Roubini, inflation is everywhere. Look. The inflationary pressures I see could drive gold to multiples of $2,000 an ounce. Unlike paper currencies, "gold doesn't disappear". Trillions of dollars? What is Zimbabwe Ben's marginal cost of producing a dollar? Or a trillion? How overvalued is it? When mankind sees "there is no alternative" it will return to gold. When? When the price is high enough. India's buying $6.7 billion of gold did not surprise me. It's peanuts in the world market.

6 comments:

Anonymous said...

ZimBen has lost control with his wild press.

One black swan like Dubai and the whole thing could implode.

Fiat money = money that the government declares to be legal tender although it cannot be converted into standard specie

Gary said...

After my parents died, one of the tasks that fell upon me was to sort through all of their "stuff." My father had saved foreign currencies that he accumulated during WWII. All of these paper notes are worthless today. I also found things that dated back to my grandfather and great grandfather such as bunch of old stock certificates from the early 1900's. Worthless of course. The items that I found that still have value are silver dollars and jewelry. Just something to think about.

Anonymous said...

Gary:
Read my 20 November 2008 post: http://skepticaltexascpa.blogspot.com/2008/11/argentinas-impending-bankruptcy.html. Franz Pick said it all.

IA

edgar said...

FCBs could buy the entire world supply of gold at today's price and still have ample clownbux reserves.

railroadman said...

India bought 200 tons, about $6.7B.

How much did Buffet spend on BNI?

Hint: It's more than 6 times what India spent and more than the total cap value of GLD (something like 5th largest pile of gold in the world).

Independent Accountant said...

Edgar:
That's the key: "at today's price".

IA