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Gold Marches Higher

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As you can see on this multi-year chart, gold has been in a sustained upward move with only a couple of pullbacks. We are at new records nearing the $1300 target that Goldman Sachs set for it earlier this year.

Its really odd to me but everything I read gives a justification for buying gold right now. I see articles saying that we are on the edge of inflation and gold should go up. I see articles saying that we are on the edge of deflation and gold should go up. I see articles saying that the upcoming holiday season in Asia will drive up the price as people celebrate the holidays with gifts of gold. I see articles saying that in Asia people are afraid of paper currencies and want gold to protect themselves.

Intuitively, when you see everyone justifying a stance, much like the rush into bonds I wrote about in earlier posts, I get suspect. Clearly, I believe gold will be much higher (based upon the need for this country to devalue our currency over time), but maybe its gone too far too fast and needs to back off a bit before its safe to add some to portfolios.

In that earlier post, I noted some “add to” levels that investors could use as purchase points with some degree of safety. But, an alternative thought came to me as I read stories about Japan and Europe wanting to do the same thing that the US is doing – why hang your hat all on gold as a way to protect yourself against a dollar devaluation.

Why not look at a foreign currency fund that is comprised of the currencies that will gain ground when the dollar, yen and euro all get devalued together. I have begun to look at the fund AYT, Barclays Asian 8, as a means of accomplishing that trade. I have some reservations since it is an ETN and not and ETF (ETN’s carry the credit risk of Barclay’s going under) and it is very thinly traded.

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I am quite certain that five years from now, the dollar will be much lower than the currencies of countries to which it is so heavily indebted and those currencies will be a nice diversification from gold and precious metals that will receive much of the investor interest.

Mark