subject: Everybody is talking about Gold Spread Betting. But should you follow the Yellow Brick Road? [print this page] Everybody is talking about goldEverybody is talking about gold. But should you follow the yellow brick road? Gold is currently on a run and spread betting on gold is surging as gold grips the news headlines. The Feds latest statement opened the door for more quantitative easing (i.e. printing money). The dollar is weakening on this news.
"Water is best, but, shining like fire blazing in the night, gold stands out supreme of lordly wealth." Pindar - First Olympian Ode
I can hazard a guess that the continued rising price of gold is due to -:
a) Worries over the dollar, the USA deficit, and the view the USA President is not seen by some as business or market friendly
b) Inflation
But is Gold a bubble waiting to burst?
Why call gold a bubble? With another probable round of quantitative easing in the UK and in the USA, weak currencies everywhere, and considering that in real terms, gold is still well below its previous peak - why would anyone call gold a bubble?
Gold has a value as a portable source of wealth, and not on someone's balance sheet as a debt but I remember the dot com boom. However, Gold also costs money to store and it pays no interest. And any asset class is only worth what someone else is prepared to pay for it which leads me to..
I believe gold may still have some way to go yet. But I do believe that when the time comes, it will fall faster than it rose. In that sense - yes, caution is advised.
Are Silvers or Miners a better play than Gold?
For those who don't own the real stuff yet, silver may be a better play. I also think that gold should not actually be going up with the indices going rising as well from a pure asset class point perspective. Otherwise, go for gold miners with a proven track record of production. NGL (Norseman) looks like a good bet to make a leveraged play on gold right now, with the added bonus of two new mines coming online by Christmas, or shortly thereafter, which is an added bonus.
Plus miners are leveraged. To understand the leverage, say gold goes from $1200 per oz to $1500 per oz - this would amount to a 25% increase. Now if you buy a mining company that can dig gold out of the ground for $600, its profits rise from $600 per oz to $900, a 50% increase. So you are getting twice the gold move in profits...
Everybody is talking about Gold Spread Betting. But should you follow the Yellow Brick Road?
