IS Gold a “Safe Haven”?
This headline caught my attention today: "Amid credit crunch, gold may be safe haven" written by Hui Ching-hoo over there at the China Daily. He used "may be." Most self-proclaimed experts (and who isn't these days) use "is" with no qualifiers. OK, all experts. Save one: Robert Prechter, the Elliot Wave guy. Mr. Prechter says gold will very likely enjoy a dramatic increase in the short term, but that, at the bottom, cash will still be king.
Mr. Ching-hoo has written an excellent article. A few salient points follow:
= The price of gold will likely hit $1,000 per ounce next year, on speculation that international capital will flow to bullion markets.
= Natalie Dempster, a World Gold Council investment manager, believes that, since "many countries are ... under ... threat of inflation," this will create a strong demand for gold, making it likely to regain the momentum it had earlier this year.
= Banks predict the credit squeeze will boost gold prices in the near future.
= Demand for gold in developing countries such as China and India will buoy its price, muses Convoy Asset Management director Ernest Chan. "Gold has an emotional significance to Chinese and Indians and gold ornaments are very common wedding and birthday gifts."
= Re: Gold and the Dollar (the essential relationship when considering prices), Billy Mak, associate professor at Hong Kong Baptist University, reports that the European central banks' interest rate cut strengthens the dollar against the Euro and the pound, which could draw capital to the dollar instead of gold.
As insurance, you are safest with some of everything: cash plus gold and silver coins. Particularly gold coins. Gold and silver coins will always be money no matter what happens to the dollar or the yuan. In a pinch, silver coins are easier to transport.
On the question of taking possession or trading in stocks/futures, risk is the deciding factor. If you are speculating, you have to go with stocks/futures. Physical possession adds too much time and inconvenience to the speculation game.
The biggest downside to trading is that your investment can literally disappear. Ching-hoo puts it more delicately: "Gold futures have higher leverage, but losses can be greater than investors' initial capital ... and there are exchange fees and commissions added to the trading cost."
ETFs are even riskier. Since trading is not round-the-clock, it's vulnerable to large gap openings. We've certainly witnessed a few of those damaging movements over the last few months!
One of the most appealing characteristic of owning physical gold: it can't disappear into thin air! It will always be money. No matter what.
Take a look at the deals taking place right now on eBay. If you are buying gold coins, you get the best prices right here. When you see a coin that interests you, check the seller's ratings, experience and feedback. Shipping is secure and both eBay and PayPal offer buyer protections. Enjoy your gold!
29 November 2008 by Gerald
