Gold – a favorite topic

Gold seems to be a favorite topic. We’ve spoken about it before, but I’ll reiterate, than in and of itself I think gold just sits there. It is a statement about inflation or deflation. A statement about the fiat currencies. A statement about an investor’s risk gauge (not appetite, because it can also be risky to invest in gold). Etc. But in and of itself gold is a speculative trade, just like other commodities (i.e. it doesn’t add to GDP, productivity, nor population shifts). Nothing wrong with it, and I make them in different contexts often, but let’s call it a trade, rather than an investment.

Now, QB Partners has issued this piece on why inflation is the only way our of our current debt situation. Long term, they may be right, although with labor costs down, productivity up, and the recession not ending quite yet, they may be wrong for a while yet. They contend that the analogy with Japan is false, since the QE went to fund international investments and was not pumped back into the economy, which is what will happen in the US. They calculate a – albeit questionable – intrinsic price for gold of $6,000. Do I agree? No. Do some of their arguments, as arguments make sense to me? Definitely yes. These arguments are some of the foundations for not feeling comfortable with TBT a few months ago and closing that position.

QB Asset Management – Trade of the Century?

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categories Academic, Commodities/Futures, Strategy/Allocation | Yaron Sadan | datetime August 11, 2009 1:25 pm

1 Comment

  • By thatsabet, August 12, 2009 @ 11:20 am

    looking forward to reading the article. Regarding the productivity numbers…dont believe the hype…this is simply business making due with less. ie 10 workers down to 9 moving a lesser amounts of goods. We NEED job creation and wages to to halt the declines. There is alot of comments coming out about Says Law.

    Say’s law, or the law of markets, is an economic proposition attributed to French businessman and economist Jean-Baptiste Say (1767–1832), which states that in a free market economy goods and services are produced for exchange with other goods and services, and in the process a precisely sufficient level of real income is created in order to purchase the economy’s entire output. That is to say, the total supply of goods and services in a purely free market economy will exactly equal the total demand during any given time period – in modern terms, “there will never be a general glut”, though there may be local imbalances, with gluts in one market balanced by shortages in others.

    It seems the GOVT thinks we can have asset inflation and wage deflation. That mix will not work.

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