1)The CPI greatly understates inflation __beyond__ not including oil and food. It does not properly account for (understates): 1) Trips to the Doctor and other services.2) The value of your car or computer. The Fed did this because inflation is kryptonite for financial assets. Real inflation is much closer to 8 to 10%. Howevever, even with the CPI bar set so low, recent inflation trends put it at 17-20year highs.
2)GLOBALISM: Politicians the world over are busy debasing currencies by running up deficits. Money supply growth is climbing at 8 to 15%. Thats why they call him Helicopter Ben. The current stimulous program is being "financed" WITH MONEY WE DO NOT HAVE! Budget deficit in 2009 will DOUBLE! The game of Capitalism dictates that you reflate the economy when trouble looms. Those in power love to talk about deflation, which just cannot happen with the Feds CPI Yardstick: Rents replace home sales price. Bernanke wants inflation now to get home prices up so more lending can take place. The problem is, 70%+ of americans already have this asset.While a house is a great inflation hedge like oil, it is ILLIQUID (hard to trade) because of it's high price and fixed geographic location, unlike gold. Gold, btw, as an asset class (ie: stock/bond/real estate/ commodities) is underowned (few people have it)! That good! In terms of supply and demand, the only proven law of economics, gold supply is very limited.
3)With the dollar losing it's status as the reserve currency of the world, currency valuations are gyrating wildly. This makes it very difficult for international companies to make business plans and hedge risk. Gold is a solid alternative. I would not be surprised if some fortune 500 company came out and said they have started using it to hedge.
4)Central Banks: Did you know that one of the reasons for the Great Depression was that the Europeans doubted we had the gold in Fort Knox to back up the gold based $$? There has been no audit of US Gold Reserves since then. Nixon took us off the gold standard.... need I say more!The Treasury is possibly playing a bluffing game in the commodities market. Did you know that even though Central Banks dissmiss gold as Barbaric, new countries cannot join the European Economic community unless they bring gold to the table? Central Bankers in China believe in gold. They are buyers. I know I sound like a conspiracy theorist here, but the odds of this seem fairly good. Why won't the Treasury submit to an audit?
5)Valuing the investment of last resort: The 8 year bull market in gold is proof that there is a solid market for gold based on the fundamental problems that Face the USA/ EU and their currencies. If you view gold as a store of value in a declining economic environment then using a historic 1 to 1 ratio with the Dow Jones Industrial average would point to a price of $12,300 on Monday morning. That seems high. From a historic standpoint thats the maximum price we should get, unless you think we are worse off than at anytime in economic history. I could write four hours why we could have a depression, but think about just one "safe" investment:Your money market fund may go bust. They have mortgage derivatives in them, even if they say "Government". Basically, I think Gold is a bargain here at $900. After all it is the investment of last resort. There are many good reasons for gold to trade at $2000, which strikes me as fair. The way bad news continues to unfold,I might up my target next week.
Just want to point out that gold is not "just" an asset, more precisely, gold is money, like a currency, and we should not talk about price, but rather of 'exchange rate'.
Here, a recent article by Mr. Turk makes the point:
Good point. I have been investing in gold for about 4 yrs now. Now at aprox. 900 oz. I sold some profit. My one concern is other than jewlery and some industry you what else is gold good for. Oil you can power things, food you need. This is a commodity that is realy not needed. What do you think?
I could roll my 55 gallon drum of oil to the grocery store, empty out a quart, and get a loaf of bread in return. Orrrrrrrr I could use my piece of gold as a medium of exchange as they did for about 5000 years. Beats the hell out of carrying an oxen in your wallet for barter.
<<<THIS IS A COMMODITY THAT IS REALY NOT NEEDED. WHAT DO YOU THINK?>>>
Oh, it's needed alright, needed as a reliable store of value.
If you talk about need, things are not always logical. Think about how the earth is being destroyed by humans, and they are still keeping it up!
Think about how animals are mistreated, innocent animals who never destroyed anything.
Or how about the Nazzis, where is the logic with them?
Soooooooo, gold - can't eat it but that's logic, logic don't matter here.
I cannot believe how stupid CNBC is. They are desperately grasping at straws to pump up stocks. Where they get these moron portfolio managers from I do not know. Liesman and Dennis saying $100 dollar oil does not matter!!!
All the media and analysts have agendas....for Fox they push the far-right......GS pumps stocks it wants to sell...and on an don.....we all need to look at the facts, the evidence which alexanderXV has nicely detailed.....someone else said it nicely too. A quarter in 1960 bough a little more then a gallon of gas....now 25 cents buys almost nothing...HOWEVER, that 90% silver quarter from 1960 can now buy you several gallons o fgas because of the silver content in it....not it's face value. Just think of what a piece of paper with Washington on it will buy you in 5 years....a piece of a small Hershey Kiss chocolate ..if you are lucky!