ANALYSIS: GOLD – a grim reaper cushion.

George Soros has been wittering on recently about gold being a bubble.  As you’d expect from this chap, he said one thing and did another – his fund is one of the biggest gold-bulls in the world. He is right – everything is a bubble in the end. The trick is not to be greedy. In fact, doing a daily greed-check is in my view the secret of good investment for the individual today: although of course, if some huge firm or Treasury or liquidity pool or Soros is ‘directionalizing’ the market, you’re screwed anyway.

Anyway, asshole or not, Soros is right: the gold bubble will burst. But (and once again, I’m not qualified so this is not advice, just my opinion) it is going to be a very big bubble that inflates in various stages. The theory that the bubble will burst just because half-awake folks have now discovered gold doesn’t hold water.

Joe Kennedy remarked that the secret of investment success was to “watch what the saps do and then do the opposite”.
I think if you get there before the herd arrives, it doesn’t invalidate your decision to be where you are when they finally turn up: it just makes your profit accelerate. Only greed keeps people in a bubble…in early, out early is the safe way. You make less but you never lose.

The sum to do today is that relationship between what will be a plunging Bond market, and how much gold there is to buy in the world. Looked at on that basis, $10,000 an oz is not unreasonable, although I will be out long before then.
The problem is actually getting hold of the real stuff. I bought a risk-weighted tracker long ago, and this gives me the option to get out early and still win big. But if the bank that issued it collapses, there’ll be nothing.
It is the nature of the world right now: forget gains, think defence – it’s all that matters.

By this I mean that I am now – at last – firmly in the inflation camp. Trichet may be talking big about ‘enough is enough’ but he’s already done enough damage to go round. Bernanke never gave up on QE, and he’s about to be given another, bigger run at it. The British MPC’s dissenters are getting noisier. Even Japan is buying its own currency, and China is selling dollars. When China wakes up to the inevitability of a rising Yuan – and its citizens start to be big buyers in the West – that too will be inflationary.

As always, in a few key asset sectors there will be rapid deflation – while one good person with authority and clout could change all of this.  On my radar, there is no such person. A lot of very clever people are going to carry on doing very silly things until money is worth a lot less than it is now. For as long as that continues and until the printing stops, gold is indeed the best way to avoid the worst of the grim repercussions.