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GOLD. YAY OR NAY?

Since gold doesn't pay a dividend nor coupon, it is not investment. No one can buy gold low for yield. Thus, gold is a speculation play, a bet on a forthcoming price rise high enough to beat alternatives.




As a speculation play, you need to ask yourself which way could the price go, up or down?

If right now were a time of peak prosperity, the likelihood of a downturn would be greater than if you were living at a time of recession or depression. In times rising toward peak prosperity, likely, the price of gold would be low relative to other speculation vehicles.

As the advance toward prosperity gets driven by credit growth, many enticing opportunities would pull speculative buying power toward these opportunities and away from gold. Yet, in peak prosperity, all of the good, credit-worthy ventures have been acquired. All that remains are those ventures with the greatest likelihood of loss.

If right now were a time of doubt and mistrust, with many corporate and personal bankruptcies underway and the growth in such rising, likely, the  price of gold would be rising relative to other speculation vehicles.

So ask yourself, what are the times right now? Is the 2008-09 credit crisis over? Even with what seems slow growth in trade today, is growth going to pick up or slow further?

It's likely the price of gold reflects the pull away from gold of all the alternative speculation plays from the world over.

In highly speculative times with abundant credit, the ratio of X (which I shall not reveal what it is) to the price of gold runs over 4.




DateGoldRatio
7/20/1999
$252.8
4.31
10/27/2000
$263.8
4.11
2/20/2001
$256.25
4.22


When gold seems priced about right, the ratio of X to the price of gold runs a bit more than 2.


DateGoldRatio
12/31/1975$140.252.09
12/29/1990$392.752.13
10/24/2008$712.52.04
6/28/2013$1192 2.11

When gold seems priced beyond what can be sustained, the ratio of X to the price of gold runs around 1 or below.


DateGoldRatio
12/28/1979$5120.76
12/30/1980$589.750.70
9/6/2011$18951.11


Today, the ratio of X to Gold is 2.04. Gold seems to be priced about right given all of the alternatives, given that growth likely is ahead and given that a time of prosperity has not arrived since peak credit of 2007 and the credit crisis of 2008.