Let's talk gold

Ok internet, I don't usually talk finances but that's because I don't usually have anything financial to talk about. Today is different though, today, we're going to talk gold. Right now, gold is ~$630/ounce and I would put money down, heck I have put money down, that it's going to be worth more. Now, when I say that gold will be worth more, I mean a lot more. The greedy reader will now being asking where to sign up but the savvy reader will be wanting to know where I'm drawing this notion from. Personally, I'm more interested in the savvy reader, so here's why gold is going to go way up.

There are three different factors involved in why gold is going to go up: gold is currently undervalued, gold's actual value is on the rise and there's going to be a huge gold fad soon.

A big factor in the undervaluation of gold is that it hasn't sufficiently caught up to inflation. The value of gold has gone up and down a little but has remained fairly constant relative to the $USD since the mid-eighties in spite of a conservative inflation estimate of about 250%. On top of lagging behind inflation, gold has a very low value relative to other commodities. Let's take, for example, oil: since 1970, gold has averaged about 7 ounces per 100 barrels of oil but right now gold is about 10 ounces per 100 barrels of oil. Now, some of you might say that oil is a bad comparison because oil is expensive right now and to that I say that oil is expensive in dollars and that commodities prices are far more tightly interrelated. Relative to the dollar, relative to oil, relative to everything, gold is undervalued right now; gold would have to get to about $1000 to be properly valued.

Ignore any monetary value for a moment, gold's application value is going up right now. With China and India modernizing, they will want and need gold. China and India will need gold to support their booming technology industries; gold is vital in electronics and all sorts of other applications. On top of needing gold, China and India will want to flex their muscles in the world marketplace, which will mean bringing their gold reserves up in line with the other big nations, which will increase demand and thus real value. Add to this that the consumers within these and other modernizing nations will want gold items and you get even more value increase.

The impending gold fad is where the real fun kicks in. The current US political climate is making people fear for the future of the American stock market and US currency, which historically has driven people to be interested in the commodities market where they can buy real things, like gold. Gold has been showing very solid growth since 2001; it's up %100 in the past five years and that tends to make people say, "ooh." More than anything else, though, there's been buzz about gold in places frequented by the everyman; it's not a secret anymore. I may not be terribly "hip", or "with it" but I keep my finger on the pulse of information and culture and when gold starts popping up in strange places, I see it. So here's what's going to happen: people are going to see someone mention gold that usually only thinks about stocks and funds or they're going to hear about it somewhere very uncharacteristic, like digg, here or some other blog. Then, these people are going to look into what people are saying and realize that gold is hugely undervalued. Then, there's going to be a huge overcorrection and, before we know it, gold will be $2000-$3000/ounce before crashing back to $1000/ounce where it should be. This is my prediction.

On top of the fact that it's going to be worth a ton of money, there are other reasons why gold is a good investment choice, namely liquidity and taxes. Gold is almost as liquid as currency and, for that matter, better than foreign currency. Find a store that deals in precious coins, metals, goods, etc., walk in and buy or sell gold, that's it. There will be a price spread associated with gold transactions but it will be pretty small. Now, let's talk about taxes; there aren't any. Gold transactions over $1000 aren't taxed and that's both directions so, if you make a gazillion dollars profit in gold, that's a gazillion untaxed dollars.

So, with the caveat that I'm no financial professional and you should do your own research to see if everything checks out, I really think that people should get into the gold market. Further, I think you should get into the market right now or pretty much anywhere up until it hits around $800-$1000/ounce.

Comments

maybe my current strategy of stockpiling dirt and garbage in my closet is outmoded.

outmoded by gold, oh the shame!