Gold News

The number of the beast

What makes gold go up - the Dollar, oil or collective madness...?

GOLD HAS RISEN to do battle with $666 per ounce yet again. The number of the beast has marked some kind of key level since early Feb.

   What makes gold go up? In one place we read gold tracks the Euro, and that every year since 2001, since the Euro began trouncing the Dollar, gold has tagged along. Others say gold gets a ride on oil's back. When oil goes down, gold will go with it. But none of these explanations is entirely right.

   Gold really is a hedge against inflation. When commodities become stocks and hedge funds become stocks and stocks become a kind of public currency for wealth building, gold trails them from a distance, sometimes jumping ahead a block or two, but always nearby. It watches bemused as people measure their new wealth in the latest currency du jour.

   Gold, which has always been and will always be money, has seen this show a thousand times before. It knows how the program always ends. The assets which have inflated the egos, expectations, and bank accounts of the newly duped eventually collapse in deflationary spiral. The supply of the new currency – whether its dollars or shares – eventually becomes so large and divorced from demand and real economic value, that it becomes worthless.

   But when does that moment arrive? When does the "crash alert" give way to the realization that your nose is about hit the wind screen and you don’t have your seatbelt on? Typically, it happens when you least expect it.

   So just try circling that date on your calendar.

Best-selling author of The Bull Hunter (Wiley & Sons) and formerly analyzing equities and publishing investment ideas from Baltimore, Paris, London and then Melbourne, Dan Denning is now co-author of The Bill Bonner Letter from Bonner & Partners.

See our full archive of Dan Denning articles

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