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U.S. House Prices Analysis and Trend Forecast 2019 to 2021

Gold Facts Ignored by Bloombergs Biased and Unbalanced Article

Commodities / Gold & Silver Oct 08, 2007 - 11:53 AM GMT

By: Gold_Investments

Commodities Gold
Gold has traded sideways in Asia and down in early European trading and was trading at $736.50/ 737.00.
As expected after six weeks of rising prices, gold took a well earned rest last week and was down by a marginal $1.50 for the week.
Continuing consolidation may be expected and there appears to be strong support in the low $720s. However, gold could continue to surprise to the upside as it has done previously.

The Financial Times reports that the credit squeeze will force governments worldwide to make substantial changes to their budget plans, Rodrigo Rato, outgoing managing director of the International Monetary Fund, has warned. Mr Rato said the credit squeeze was a “serious crisis” that was not over yet and would curtail growth worldwide. “Policymakers should not think that the problems will stay at the desk of the bankers,” he said. “Problems are going to come to the real sector, come to the budgets – that is something we keep telling people.” His comments came during an interview with the Financial Times in which he appeared to endorse European concerns about the decline in the dollar; a subject that threatens to be a cause of discord at the Group of Seven summit and IMF annual meeting this month.

Forex and Gold
The USD has continued its tentative rally Monday and is trading at 1.4091 and 2.0371 against the EUR and GBP respectively.

Friday's better than expected September payrolls number and the unexpectedly large upward revision to the August payrolls figures led to a sharp rally in the USD. However, this soon faded and the USD actually closed lower than prior to the release of the jobs data. Rose tinted analysts hailed the jobs numbers as a vital sign of continuing robustness in the U.S. economy however many failed to acknowlege that the U.S. economy actually needs to create some 150,000 jobs per month just to break even in terms of national demographics and immigration. Also most of the jobs were created in the state sector, in government and education.

From its all time record low at 77.657, the USD is up to 78.55 or 1.14%. This is to be expected given its fall of 5.5% from 82 in mid August. The sharp and fast sell off in the USD could lead to a correction back to previous support at 80 or to the 50 day moving average at 79.20. Below 77.657 the USD is in uncharted territory and there could be a sharp sell off down to 75.

Spot silver was trading at $13.27/13.29 (1200 GMT).

Platinum was trading at $1366/1371 (1200 GMT).
Spot palladium was trading at $361/366 an ounce (1200 GMT).

Biased and Unbalanced Article on Gold
Bloomberg published an article, 'Gold is precious, but not as a hedge against inflation' on Friday which is being picked up internationally including on the excellent Finfacts -

It is one of the most highly selective, one sided, unbalanced and misleading articles on gold I have ever come across. Wall Street and many financial journalists have an obsession with stock markets and there is a lack of knowledge and bias against gold.

Sesit arbitrarily picks out gold's speculative one day bubble high of price of $850 in 1980 as his very convenient starting point (as most anti gold pieces do) and then extrapolates that as gold is below that price today that therefore ipso facto gold is a bad investment. This is akin to saying that because the Nikkei was at 40,000 in 1989 and is only at 17,000 today that therefore the Nikkei is a bad investment today. Or that because land prices in Japan are some 70% less than they were in 1990 that therefore land or property in Japan is now a bad investment. Similarly, many said the same thing about the Dow Jones when it was trading at 1,000 in 1982, because it had traded at 1,000 in 1970. They were proved very wrong.

More importantly, gold was at $35 in 1971 and has outperformed the S&P 500 since then. This is important as 1971 is when Nixon ended the Gold Standard and our modern monetary system commenced. Up until then stocks were quoted in USD which was backed by gold. Now U.S. denominated stocks are quoted in a fiat paper currency backed by the promises and performance of politicians and central bankers in Washington.

Successful investing is about focusing on the long term and 35 years is the investment lifetime prior to retirement of the average investor. Therefore using gold's intra day high price on January 21st 1980 as the price starting point in comparing gold to stocks is very disingenuous and misleading. Thus, Sesit conveniently and completely ignores the 1970s when gold vastly outperformed all asset classes. This is particularly ironic as the U.S. is on the verge of a significant stagflationary recession akin to the 1970s or worse.

Similarly, Sesit conveniently and arbitrarily uses the year 1988 for his straw man inflation argument. How very convenient to use one of the most benign period in terms of inflation that the U.S. has experienced.

It has been shown in numerous academic studies including by Ibbotson and Associates, respected experts on portfolio and asset allocation, in a June 2005 study, Portfolio Diversification with Gold, Silver and Platinum, how gold, and indeed precious metals, are the only one of the seven asset classes with a negative average correlation to the other asset classes. It is also worth noting that the authors showed that, excluding cash, precious metals are the only asset class with a positive correlation coefficient with inflation, which is further evidence that precious metals act as a hedge against inflation. Contrary to the Sesit's sweeping generalisations.

TIPs might offer protection against inflation however they also have considerable risk in terms of currency risk and Treasury price risk. In a rising interest rate environment the value of the bond or Treasury will fall as happened in the 1970s. The Street examined this recently -
inflation-busters/markets/marketfeatures/10382927.html?puc=_googlen?cm_ven=GOOGLEN&cm_cat=FREE&cm_ite=NA "TIPs seemed to have worked well during the most recent period, but that has been relatively tranquil compared with 30 years ago when inflation last got really out of hand in the U.S. "TIPS were not around at a time when you had a wild bond market like the 1970s," Coxe says. During that period yields went to 17% from 7%, he explains. And because the value of a bond moves inversely with market yields, investors who were holding fixed-income securities during that period took it on the chin."

There is significant currency risk. When the USD trades below 2.00 to the EUR (as it has already done with GBP) and gold trades at over $2,000 per ounce in the next 10 years as they are very likely to do, this silly article will be seen for the one sided and misleading diatribe that it is.

Most importantly, the author also fails to note that investments are cylical and have periods of over valuation and under valuation and outperformance and underperformance. And crucially fails to observe the fundamental tenet of investment theory which is to be properly diversified and not have all one's eggs in any one basket whether that be gold, property, equities or Sesit's beloved TIPs or any other asset class.

Irresponsible and unbalanced journalism such as this creates fear and wariness of the gold market and perpetuates a lack of knowledge and indeed ignorance about the gold market.

Gold Investments
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