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July 2024

some facts about gold

In reading Campbell Harvey’s research on gold, I thought the following 3 charts were most interesting.

1. the real price of gold in the last 200 years

real price of gold 200 years

– the current period of price surge of gold has been extraordinary, even dwarfing the gold bubble in late 1970s.  The #1 fact to bear in mind is gold price will eventually tumble in a very big way – it’s fool’s game that you think you can time the market.


2. how the gold price is related to real interest rate

gold price and real interest rate

– in my mind, I always think real interest rate plays a bigger role in determining the price of gold than any other factors, incl. inflation.


3. three elasticities of gold price: a. jewelry demand; b. investment demand; c. technology demand

gold price elasticity

– jewelry demand responds negatively to gold price: as price increases, fewer people can afford it in countries like India and China, where gold jewelry is popular.

– the waning jewelry demand is more than offset by increasing investment demand, especially in the age of ETFs.

– technology demand (or rather supply) responds to gold price very slowly due to the fact innovation in mining gold takes time, but eventually it will catch up.


The latest interview of Jim Rogers

WSJ interview of Jim:

I’m troubled by this chart

Is a crash imminent?

(graph courtesy of Cumstock Partners)

Jim Rogers plays US and China

The usual plain-word no-nonsense Jim Rogers:

What’s ahead of us?

Victor Sperandeo, George Soros’ former trader, commonly nicknamed as trader Vic, himself a wall street legend, shares his views on many interesting issues today: US economy, bond outlook, inflation, US dollar, gold and silver. A very insightful piece. I highly recommend it.

Yardeni on market outlook

Bridgewater’s Dalio on Investment Outlook

Ray Dalio, founder & CIO of Bridgewater Associates, runs the world’s largest hedge fund with $89 billion under management, returning more for the fund’s investors last year than Google, Amazon, Yahoo and eBay combined.

In this CNBC interview, Dalio shares his view on the US dollar, world investment outlook, the ongoing great deleveraging and the great divergence between the developed vs. developing world.

Update on Junk Bond Market

Junk bond market had given investors great return in both 2009 and 2010.  With junk yield approaching historical low, one of the greatest short opportunities starts to take shape.

The memory of the great credit bubble burst in 2007 is still fresh .  Back then, junk bond spread (with comparable treasuries) reached its lowest point in history, about 2.6%.  Now the yield spread stands in 4.5% range – looking relatively high and indeed the spread may go even lower – This is exactly the argument from junk bulls.

But a simple analysis clearly defies bulls’ logic, in favor of junk bears.

First, interest rate is at historically low.  It can only go up in the future, regardless whether it’s due to true economic recovery or because high inflation forces interest rate to rise.  When the Fed reverses its monetary policy, bond market will be hit hard.  Junk bond, with its bigger default risk and higher volatility, will be hit hardest.

Second, if the economy instead turns southward, entering a period of protracted low growth, mimicking Japan after its housing bubble burst, then the default risk will rise sharply.  By then, Bernanke co. may print more money, but it won’t matter any more.  Ask yourself: What real effect have QE1 and QE2 really had on the economy, besides popping up asset prices?!

For investors, timing again is important. Watch the Fed’s move and hear their talks- any sign of rate hike will be the trigger.

This short video from Financial Times gives you a nice  historical perspective on the junk bond market.

(click on the graph to play the video).




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