Why are these metals so precious?, page 3

This is an article published this past Friday.

www.marketwatch.com...

Gold climbed to its "highest level since January 1980 on a combination of inflation concerns and safe-haven buying in the wake of a sensitive geopolitical environment and renewed concerns about the U.S. growth outlook," they said. "Coupled with the prospect of further Fed easing this will continue to underpin gold."

Let’s break this down shall we. According to this article, the first reason that gold hit an all time high this past Friday was because of inflation concerns. However, general market sentiment is that the housing crunch and higher gas prices will cause an economic downturn in the economy. What proof do we have of this? Well, it behooves anyone who watches the gold market to also take a gander at the copper market. In fact, I would say that the copper market is a great indicator of whether or not there is a real slowdown in the global economy.

www.bloomberg.com...

A slowdown in overseas purchases may lead to lower prices for the metal on the benchmark London Metal Exchange.

If copper is falling in price then that is a good indicator that inflation will not be as much of a concern as it has been in the last few years. As well, a general slowdown in the economy should bring down other commodity prices just as the slowdown in housing has brought down lumber prices. So, while inflation has been high this in the recent past, it should not be as high for the next few years.

The second reason that gold was high as listed previously was because of a sensitive geopolitical environment. Well, yes, the environment is sensitive, but in regards to what? What is sensitive is the Middle East and the oil supply. Which, if oil further rises in value then it would have an even further debilitating effect on the U.S. economy. This should even further slow down economic growth and, in turn, lower inflation and the usage of basic materials commodities even further. So how can oil instability (sensitive geopolitics) make gold go higher, if, in fact, it will lower inflation by causing a further decline in the economy? The answer is that it can’t from what I know.

The third reason that gold went higher (according to the article) was because of “renewed concerns about U.S. growth. Haven’t we all ready talked about the slowdown in the economy enough? They must be now talking about a still lowering in the value of the U.S. dollar? Well, if that is the case then that should further slow down our economy because our economy depends on massive imports from overseas. If the U.S dollar keeps falling then won’t that hurt most companies that depend on purchasing power in their economies of scale? Of course it will, and that, in turn, will only add to a worsening, I’m sorry, “slowing down” of the U.S. economy.

The final statement made was about a “further” Federal Reserve Board easing of interest rates. If the aforementioned slowing down of the economy is also lowering commodity prices then why would the fed need to lower the interest rate to combat inflation? If commodity prices continue to fall, thus lowering inflation, then why would the fed need to lower rates again? Well, it would not be because of inflation as implied in the article. Instead, the Fed might lower rates again to stimulate the economy again given the concerns about the severity of this so called “slowdown” (which is just a nice way of saying recession or depression).

In conclusion, I think that the reason that the article explained higher Gold prices was either false, or overstated. I think that Gold is going to fall and fall fast given the nature of what I see as a hard landing in the economy. And remember, when our economy goes, then so does the rest of the worlds because we are still the great consumer of the world. We are the ones who buy the most goods. We are the ones with a huge trade imbalance with places like China. That means that when we can no longer keep making purchases on our credit card, then the rest of the worlds economy will fall just like our is about too. And when the world’s economy has its legs taken out from under it then gold will also fall in value.

I think Warren Buffets purchase of Jewelry Companies is being done perhaps 2 years ahead of a major reduction in gold prices. I think that he is positioning himself to profit highly off a significantly lowered U.S. dollar with high exports of jewelry to places like Canada and the European Union. While their currencies rise and our currency falls, major exporters will profit handsomely even through a major slowdown in the economy.

If the price of gold falls and these jewelry makers and retailers can still ask a higher price for their goods then their profits will soar. Basically, the cost of doing business for them will be much lower and demand from foreigners will be much higher, giving Warren Buffet a great bottom line in these Jewelry companies.

Imagine what that would do to the stock of those Jewelry companies? If the economy suffers and gold drops then investors will flood to these jewelry stocks. I think warren buffet is banking on a drop in gold prices and I think he is moving ahead of the curve by about 2 years.

Buy stock in a jewelry company my friend and sell your gold.

[edit on 28-10-2007 by Hot_Wings]

[edit on 28-10-2007 by Hot_Wings]

[edit on 28-10-2007 by Hot_Wings]