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Soaring price of gold indicates rocketing inflation next year

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    Soaring price of gold indicates rocketing inflation next year

    Been saying it for ages - Oh dear ...

    Soaring price of gold predicts bout of carnage in bond markets

    Soaring price of gold predicts bout of carnage in bond markets

    By Ambrose Evans-Pritchard (Filed: 05/11/2005)


    The rising price of gold is a flashing red alert for investors, pension funds, and insurance firms holding bonds worth trillions of dollars, according to a new study by H.C. Wainwright & Co.

    After reviewing data back to 1951, it found that gold is an uncannily accurate predictor of inflation one year ahead -- and a crystal ball for future interest rates and bond prices. If so, there may be carnage in the bond markets in 2006, since gold is now screaming inflation.

    Gold touched $478 an ounce in September, the highest level in 18 years. It has risen about 90pc since 2001, although it has slipped back over the past month.

    This rise is at odds with abnormally low interest rates on all forms of debt - from junk bonds, to Latin American loans, to gilts and US treasuries.

    The yield on German 10-year bonds fell below 3pc this spring, the lowest ever recorded, bringing down all eurozone yields in lockstep. While rates have since crept back up, they are still anticipating very tame inflation.

    As a rule of thumb, long-dated bonds lose half their value if inflation doubles (and stays high).

    The study, released by the World Gold Council, found that gold is a much better forecaster of inflation than oil, which indicates what will happen to prices next month, but not next year.

    "Gold provides a much earlier warning. The optimal correlation (0.73) between changes in the price of gold and changes in 10-year T-bond yields is about 12 months," it said.

    "Because gold moves earlier than official measures of inflation, it works much better at anticipating monetary policy than 'Fed watching'," it said.

    "Gold is a powerful predictor of nominal interest rates, both long and short. It is free from many of the errors of measurement that bedevil the official indices of inflation," it said.

    While the price of gold can be buffeted by the vagaries of South African politics, Chinese demand, and central bank sales, the study found distortions rarely last long.

    Unlike industrial metals, it is not subject to abrupt business-cycle swings in supply and demand.

    Although gold has come off its peak, dropping to $456 yesterday, most experts view this as a short term "technical" correction in a healthy bull market.

    Gold has had nine corrections in this upward trend, usually lasting about six weeks. Each time gold has held above its 50-week moving average, a key support line watched by the big funds and bullion traders.

    Three European central banks may have played a role in the latest dip, selling 398m ounces in the last week of October, according to the ECB in Frankfurt.

    But central banks cannot offload reserves at this pace week after week since they are restricted by a five-year accord to total sales of 500 tonnes a year. In any case, Asia's central banks are automatic buyers as they move to keep the gold ratio of their fast-growing foreign reserves at 2pc.
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    #2
    WTF are you going to do with your gold in case of major screwup? Can you eat Gold? Can you refuel your car with gold? You can't do jack really - its an old irrational human desire for gold that no longer has significant real value.

    Comment


      #3
      Originally posted by AtW
      WTF are you going to do with your gold in case of major screwup? Can you eat Gold? Can you refuel your car with gold? You can't do jack really - its an old irrational human desire for gold that no longer has significant real value.
      It never had real value, it's value was always based on rarity and perceived value

      Where as money these days is based nearly entirely on perceived value alone.

      Comment


        #4
        Originally posted by Not So Wise
        It never had real value, it's value was always based on rarity and perceived value.
        Just like value of shares. If you want to be safe buy guns, canned food and lots of fuel.

        Comment


          #5
          gold does have a value, and that value is increasing and has done for many, many years, there are places that will sell you gold bars in the UK, small ones at about £150 per time, but you will find for a small time invester gold coins are worth more. The draw back is you don't get any income from gold, no div's, no rent, no interest. However if you have some money and want to keep it for a rainy day, your bank accounts have reserves in them, then get some gold.....I know I have, and will continue to do so in the future.
          SA says;
          Well you looked so stylish I thought you batted for the other camp - thats like the ultimate compliment!

          I couldn't imagine you ever having a hair out of place!

          n5gooner is awarded +5 Xeno Geek Points.
          (whatever these are)

          Comment


            #6
            So buy short term bonds.

            I'm alright Jack

            Comment


              #7
              Originally posted by BlasterBates
              So buy short term bonds.


              for long term wealth......
              SA says;
              Well you looked so stylish I thought you batted for the other camp - thats like the ultimate compliment!

              I couldn't imagine you ever having a hair out of place!

              n5gooner is awarded +5 Xeno Geek Points.
              (whatever these are)

              Comment


                #8
                Stocks, shares and bonds are all too vulnerable to markets and currencies. Gold holds its value, it always has done and is effectively index linked when inflation goes mad. What good is your 1000 pound bond (unless it is index linked) share or cash when it costs 10000 to buy a newspaper?

                It has always been the case that investors retreat into gold whenever they fear something is going to happen and historically they have been right.
                I am not qualified to give the above advice!

                The original point and click interface by
                Smith and Wesson.

                Step back, have a think and adjust my own own attitude from time to time

                Comment


                  #9
                  feck's sake AtW you have just proved you know Jack about Jack !

                  kurgerands are the way to go, small enough deonomination that they can be liquidated on demand and recognised all over the world should you need to liquidate them away from the original place of purchase

                  according to the experts 20% of your wealth should be held in gold

                  Milan.

                  Comment


                    #10
                    Originally posted by milanbenes
                    feck's sake AtW you have just proved you know Jack about Jack !

                    kurgerands are the way to go, small enough deonomination that they can be liquidated on demand and recognised all over the world should you need to liquidate them away from the original place of purchase

                    according to the experts 20% of your wealth should be held in gold

                    Milan.
                    Don't forget your VAT certificate...

                    Comment

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