Monday, March 03, 2008

Gold vs. paper assets

And the winner is gold.

Bloomberg - "Gold beats financial assets as investors seek safe haven".

"Gold, silver, platinum and palladium may be the best-performing financial assets this year as inflation and slowing growth erode the value of the world's major currencies, bonds and stocks.

Precious metals have risen at least twice as fast as the euro and yen in 2008 and returned six to 20 times as much as U.S. Treasuries. The Standard & Poor's 500 Index and all other major gauges of equities are down. Gold futures reached an all- time high of $992 an ounce today, while silver traded at $20.74 an ounce, the most expensive since 1980."

The idea that investors would increasingly seek out tangible assets and investments as inflation accelerated has been confirmed. Investor preference for gold and tangibles vs. paper financial assets is now a mainstream trend.

What a chart of the Dow versus gold has shown for years is now made more apparent by recent investor behavior. Investors and savers worldwide are waking up to the reality of a synchronised global inflation and the steadily-eroding purchasing power of their paper currencies. Preference is increasingly shifting to gold and tangibles, and away from paper assets.

"Investors are using metals to preserve their buying power as the U.S. Dollar Index falls to a record and inflation accelerates.

The U.S. Dollar Index, which tracks the currency against six major counterparts, touched 73.354 today, the lowest since its start in 1973.

Even gold traded in euros, yen and pounds reached records this year as consumer prices rose around the world, eroding the appeal of currencies as an asset."

So it's gold and tangible assets over paper money and financial assets, at least for now.

If you'd like to hear more about the Dow-gold ratio, and why it is an important gauge of market performance in real terms, check out this recent Bloomberg clip of Robert Prechter speaking on the subject.

I'll talk more about the other metals, especially platinum and palladium, later on the week. Hope to see you then.