No, it is not true. First of all, the price of just about every other asset also fell, so gold was no different in this regard. More importantly, gold is a tangible asset, so it does not have any counterparty risk. It is this attribute that makes gold the best safe haven.
What makes gold so volatile lately?
It is not only gold that is volatile. For example, the VIX Index, which is a measure of volatility of US stock markets, tripled over the past couple of months. Everything is volatile because the financial system is breaking apart. To explain this point, picture in your mind a spinning top. As it slows down, there are often some huge wobbles before it rights itself, and then eventually falls over. The volatility we are seeing now is those wobbles. I expect another bank collapse like Lehman before the end of the year. That is when the top will fall over.
Some people say gold is now close to a bubble that might burst soon. It is the end of a decade-long bull run. What do you think about this opinion?
Many people said the same thing about the Dow Jones Industrial Average in 1984 after it moved above 1,000, which was a level that had not been broken for 16 years. They obviously were wrong because they looked at the DJIA’s price, rather than what they should have been looking at, which is its value. All my measures suggest that gold remains undervalued. Its price has risen only because national currencies are being debased, which is causing them to lose purchasing power.
Technical analysts have been predicting gold prices quite correctly, also the fall a few weeks ago. How important is technical analysis for you and your estimate?
It is not too important. There are two things upon which one needs to focus – value and strategy. Gold is undervalued, so it should be accumulated, which brings up the second point. Everyone’s strategy should be one of buying gold on a regular basis as part of a cost-averaging accumulation program. Gold is money, so view the gold you are accumulating in this way as your savings.
Where will the gold price be by the end of this year and by the end of 2012?
Probably higher. Even though gold had a setback in price lately, I expect gold to be over $2,000 before too long. If it doesn’t happen in 2011, it will surely happen in 2012.
Some currencies like the Swiss franc and the Yen have also lost its value as a safe haven. Is that comparable to the gold price?
No, it is not. These currencies lost their safe haven value because of central bank actions. Central bank policies determine the value of national currencies. The value of gold is determined by the free-market, or in other words, by the countless millions of people who understand gold’s enduring usefulness.
How would you describe the risk of owning gold?
Gold is just like very other asset in this regard. You want to accumulate it when it is undervalued, and sell it when it is overvalued. If you know how to value any asset, the risks of owning it can be controlled.
What are the fundamentals that gold owners have to look after?
It’s simple really. People only have to ask themselves two questions. Are central banks are doing a good job? Whose interests are central banks are serving, the general population or conversely, banks and the government. Clearly, central banks today are not doing a good job, and given their willingness to bailout bad banks with taxpayer money, they are not serving the interest of most people. Therefore, and given the fact that gold remains undervalued, everyone should be accumulating gold.
No comments:
Post a Comment