Gold: The Trade of the Decade
Source: MoneyWeek, Merryn Somerset Webb††(12/16/09)
". . .this gold bull market is that it is likely to be very volatile. Why? Exchange traded funds (ETFs)."
It turned out to be a good plan. In 2000, you could buy an ounce of gold for $280 (the average price over the year). Now, it will cost you $1,125. At the time, Bonner saw what most others did not. He saw the U.S. not as an economy carefully and cleverly managed by then Fed chairman Alan Greenspan and his passion for low interest rates, but as a massive credit bubble waiting to burst.
He also saw the massive and growing national debt, trade and budget deficits and fast-growing money supply as factors that would naturally debase the dollar over the long term.
So he held the only non-paper currency there isó gold. Bonner had a good decade, making returns of 400% plus. The question now is: Will he have another one?
I suspect he might. Why? Because he's going for the same trade of the decade for the next 10 years as he has for the past 10.
Additionally, gold bugs are no longer alone in their hoarding of goldócentral banks have become net buyers for the first time in many years and fund managers are waking up to the idea that gold can hedge them against a great many nasty things.
However compelling the case, one thing to bear in mind for this gold bull market is that it is likely to be very volatile. Why? Exchange traded funds (ETFs). They are huge.
ETF Securities says it has $9.5bn worth of physical gold holdings backing its products. So, as investors fall in and out of love with gold, and trade ETFs that must be physically backed, the gold price could gyrate violently.
Whatever happens in the short term, in a financially uncertainty period on today's scale, I don't think you can be without a proper precious metal.