DaveS wrote:I want to talk a bit about inflation which Rick quite correctly points out relates to gold prices. Right now capacity utilization is about 73 percent. unemployment is about 10%. Generally, but not exclusively, you have to have capacity utilization go up to the upper 80's and unemployment to go below 5% before there is enough pricing power to cause inflation.
Many Latin American countries have had very high inflation along with very high unemployment simultaneously. In Argentina's last episode with high inflation the unemployment rate went as high as 25% along with a peso devaluation of more than 66%. Currency problems are not stable nor predictable in how it could play out. It's also a rapidly accelerating condition that can take investors by surprise. There is no way to predict these things.
Further interest rates are at historic lows. That means that if some manufacturer wanted to raise capacity, capital to do it is plentiful and cheap.
They're low partly because the Fed wants to cause inflation. They have not been coy about saying this. We could be in a situation like Japan where LT bonds rates could fall to 2% and stay there for decades. Or the Fed could get their wish and have the inflation they are looking to get. There is an argument to be made that the markets are torn between these two outcomes during this transition. But then again, maybe everything will just kind of work out.
Inflation is not in the cards. Several hundred years ago speculators bid up the price of tulips in a speculative frenzy. That is what is happening to gold. Stay away. Dave
Nobody knows if inflation is in the cards or not. The Fed is hoping it is in the cards. So are other economists. They may get their wish. But if gold is part of your asset allocation then you need to hold it and rebalance it based on your investment strategy. You don't sell and buy in and out of assets based on what a gut feel is telling you.
The positions I see advocated on asset allocation management in these threads is puzzling. On the one hand you have favored assets like stocks and bonds that I'm sure most posters would advocate never trying to time (even in the bubble of 2000 and 2007). But for unfavored assets they are all about timing them as if the future performance can be easily gleaned. What is it about assets like LT bonds and gold that people think they can predict the future price movements? Yet, they don't advocate this position with other assets like stocks and short term bonds where they act like it can't be done?
The posters in this thread can't have it both ways. You can either time the market or you can't. If you can time the market for gold and LT bonds then you can do it with stocks as well. Stocks are trading with a PE in the 16-18 range which is not a screamingly good buy. Should we recommend that people sell them as well?