Markets and Money has its ‘Crash Alert‘ flag flying in front of the company headquarters. Looking out the window…or at the headlines…you’d wouldn’t expect any trouble. When have things ever been better? Stocks rising. The housing bubble is now coming in for a ‘soft landing;’ everybody knows that. Oil is going down. And the winter will soon be over. People are beginning to wonder why we remain on ‘Crash Alert.’
“What do we know that they don’t?” they ask. “Nothing,” is the answer.
All we know is that when liquidity is rising at the fastest rate in history – with New Inflation that is not completely controllable by the central bank – somebody’s money is going to be flushed away.
How? When? Whose? We wish we knew.
But we have a feeling that we are not completely alone. Look at the price of gold. While oil has dropped to $50 a barrel, gold has gone up. In January 2005, gold was still only $425 an ounce. Now, it is $625…after having gained 20% last year.
Other commodities are up…down…all over the place. But gold keeps gaining ground. Why? Because it is the ultimate antidote to rising liquidity. People have wealth…money. They are happy to put it to work in the hope of earning more. But when they begin to worry – about inflation…or about deflation (about the real value of the paper assets they hold) – they look around for safety.
Typically…they find gold – because gold has always been a source of financial safety. No, it doesn’t necessarily go up; and it doesn’t necessarily go down. It never pays a dividend. But it never goes away.
The remarkable quality of gold is its steadfastness. Most of the time, you could care less. Why would you want to hold a lifeless, dividend-less, cold, inert yellow metal, when you could own a warm, living, productive business…or a farm…or a Treasury bond? You wouldn’t. Most of the time, holding gold is not a very shrewd thing to do…unless you are in the banking business. But the same thing that makes gold useless most of the time makes it invaluable occasionally. It is a bit like an annoying friend or an insurance policy. Most of the time it is a waste of time and money; then, once in a while, you are glad you have it.
We’re not sure of anything…but it looks to us as though this is one of those times.