Gold is near a 27-year high. Even at that, it might be the best bargain in the financial world. Everywhere you look…records are being broken. Tin hit an all-time high earlier this week. The Australian dollar is at an 18-year high against the greenback…oil approaches its all-time high set last May…and China…well, in China so many records are being broken it is if a dump truck had smashed into the Mo-Town Hall of Fame.
China’s record growth – fastest pace in 12 years – accounts for some of the other records. It is drawing down a large part of the world’s stock of natural resource savings. No wonder the price of tin is going up…and the price of oil. Even the Baltic Shipping Index – which measures the demand for hauling dry goods by sea – is at a new high.
But some of the price growth – and maybe most of it – can also be a measure of the falling dollar. The more dollars in circulation, the less of the past each one should buy. A barrel of oil, in 1998, could be traded for 11 US dollars. Today, you need 78 US dollars to buy a barrel of oil. Gold, on the other hand, has gone up less than half that much. If gold were to go up as much as oil, an ounce of it would sell for about US$1,800 today.
Why has gold not kept pace with oil? Probably because you can’t use gold to run your automobile, or generate electricity, or make steel. Gold is not as directly connected to the Greatest Economic Boom Ever as oil is.
It is not a boom-time metal. It is bust-time metal, only useful as a hedge against prosperity…especially valuable when the boom turns out to be not quite as great as people hoped, there will probably be a lot of people who wished they had stored more of their wealth in the yellow metal.
Markets and Money