Gold: The Last Cheap Asset Class

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Globally, entire gold markets that didnít exist in 1980 are now beginning to buy the precious metal. Vietnam started trading gold futures in June 2007. Already the exchange trades around $100 million in gold futures a day. Chinaís Shanghai Futures Index started trading gold futures just a few months ago.

...I know, weíve all heard the claim before: Based on inflation, gold would have to trade above $2,000 an ounce to match its 1980 high. However, itís only when you really consider the precious metalsí performance relative to other assets óstocks, real estate, etcó that you begin to see what value gold has even as it hits record highs.

Since 2001, gold has outperformed stocks, bonds, and just about every investment you can name. And itís done this with no yield, no cash flow, and no Wall Street gurus pushing it on their clients. Yet I would wager that fewer than 1 in 10,000 investors actually own the stuff. Only 10% of worldwide demand for gold is for investment purposes.

This wonít last for long.

Globally, entire gold markets that didnít exist in 1980 are now beginning to buy the precious metal. Vietnam started trading gold futures in June 2007. Already the exchange trades around $100 million in gold futures a day. Chinaís Shanghai Futures Index started trading gold futures just a few months ago. The latter country has already surpassed the U.S. as the second largest consumer of gold behind India.

Gold is a great inflationary hedge. However, in light of the growing number of gold investors, itís going to be a great investment simply due to supply and demand as well. Sure, $2,000 gold may sound ridiculous. But $1,000 gold sounded ridiculous just three years ago. And we flirted with that level earlier this year.

I strongly suggest buying gold during this recent pullback if you havenít already done so. Bear in mind, Iím not a trader. Iím an investor. I look for investments of value. And to me, gold remains one of the last cheap asset classes relative to its historic levels.

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