I have been watching Gold lately as an asset class – Gold has always been a curiosity of mine as to why people would invest in gold.  Over the last few years as I have been watching how momentum impacts markets, I feel I understand a little better about the hows and whys of how gold prices move.

As of this writing gold is up 26% YTD, and the gold miners index is up 136%:
goldytd

So you might think you are an idiot for not investing in gold this year – except if you thought that 5 years ago, people would call you an idiot because gold had been steadily declining for the last 5 years:

gold5year

 

Obviously Gold is a tricky investment, and lots of people stay are recommended to stay away from it.  However, it seems that as interest rates approach zero – people are wondering the downside of holding gold?  I think there is an increase in people’s nervousness that with all this sovereign debt floating about the world, some event will explode on the scene and inflation will kick in.  If that happens, bonds yielding 1% is not the place to be.

The argument against gold would be a deflationary scenario – in which prices fall – gold will follow.  Apparently markets don’t see that as a significant risk.

Jim Grant, who has consistently been a gold bull, and points to worldwide monetary shenanigans as the reason for golds new found popularity.

In a recent radio interview, former Fed chief Alan Greenspan suggested if we returned to the Gold Standard, ‘we’d be fine’.  Returning to the gold standard has long been talked about as a kooky idea by economists, and it may well be an antiquated idea.

However, something is driving the new found interest in gold, and I think the worldwide decoupling of printed money from government assets is leading the world to wonder about the value of currency.  So whether or not a formal move to the gold standard ever gets momentum, it appears investors are wanting their assets backed by tangible goods.

 

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