Gold is still cheap at $1,000 per ounce

February 27, 2008 at 9:44 am (Gold)

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I was lucky enough back in 2003 to buy some gold when it was $300 an ounce.  I did this not because I knew anything about investing (I still don’t) but because common sense dictated that when something was cheap as it had been in a generation, and that something had made and broken empires from time past remembrance, it was time to buy that something.

Now gold is nearing $1,000 an ounce.  Actually, I don’t think it’s climbed in price much; rather the value of the dollar has plummeted.  But that’s other conversation.  The reality is that $1,000 is still about half-price if you use some time-honored markers.  In 1980, when gold was at its peak in inflation-adjusted dollars ($875 back then was around $2,200 in today’s dollars if you use the government’s conservative inflation calculation methods), oil was also at its peak.  No coincidence, of course.  Both goods were much surer bets than any currency as far as holding their value.  You will always find someone who wants gold or oil — oil is the rum and spices of the modern era and gold is, well, gold.

At that time, oil was $39.50 a barrel.  Using the same official government calculations, that equates to $103.76 per barrel in today’s money.  Today, oil broke the $102 mark.  Considering the explosion of crucial goods globally, like the tripling of the price of wheat in the past year, I think that gold is still underpriced.  Gold, the only real money (the rest is paper), would fit right in with 1980 by being roughly double its price.  In fact, every day gold climbs, confidence in world currencies declines, especially confidence in dollars.  Quasi-government agencies are working hard to prevent gold from exploding, which is why the IMF (International Monetary Fund) is planning on dumping a bunch of gold reserves on the market to keep the supply up and therefore the price down.

But it won’t work.  People are really starting to wake up to the fact something colossal, something not seen by any of most Americans, is coming, and they’ll snap up that gold as fast as the IMF dumps it, and the price will continue to soar.  A good friend of mine cashed out his entire retirement fund and bought gold with it a few weeks ago, when the price was “at its peak.”  Theoretically, it’s possible gold will go back in the 700 or 800 range — and all it would take is for housing prices to start going back up, for oil to drop, for our government to suddenly have a surplus, for our manufacturing base to magically reappear, for food to get cheaper.  On the other hand, anyone who buys gold now at its “highest price ever” might well be making the only good financial choice left.  Well, other than silver that is, but that’s a story for another time.

Today’s article of doom: Arctic doomsday vault.

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