11/24/09 Stockholm, Sweden – Here at The Daily Reckoning we tend to be of the mind that gold is in a genuine bull market, one that began about 10 years ago. It may have its moments of frothiness or corrections along the way, but it’s still trending upward. Needless to say there are those that disagree, and who believe gold is part of a forming asset bubble. The Daily Gold takes this “gold bubble” perspective to task for several reasons.
For starters, “it is real interest rates that matter. Rates need to be 2-3% above the level of inflation.” Basically, in order for an interest rate hike to make a difference, and to have an impact on the gold price once inflation is accounted for, rates would have to go up much higher than seems plausible given the current high and rising unemployment.
Also important, “most people expect the US$ to lose value. If it loses 5% a year and inflation is 2-3%, then rates really need to be 10% to poke the bull in gold.” So, in this respect it could be difficult to spur investors to choose a weakening dollar, with a mediocre interest rate, over potentially constant or steadily increasing value in gold relative to the dollar.
You can read more details in The Daily Gold’s post on the interest rate argument against gold.
Rocky Vega
Rocky Vega is publisher of Agora Financial International, where he advances the growth of Agora Financial publishing enterprises outside of the US. Previously, he was publisher of The Daily Reckoning, and founding publisher of both UrbanTurf and RFID Update -- which he ran from Brazil, Chile, and Puerto Rico -- as well as associate publisher of FierceFinance. Rocky has an honors MS from the Stockholm School of Economics and an honors BA from Harvard University, where he served on the board of directors for Let’s Go Publications, Harvard Student Agencies, and The Harvard Advocate.
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Thanks for the post. Myself, I’m one of those odd ducks who think that gold’s either on the cusp of a bubble or in the early stages of one.