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August 12, 2011

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I downloaded it and read over it- to their credit they included the following:

“The rise in gold and silver prices in recent years has been meteoric. But when something
can’t go on forever, it doesn’t. So it’s only natural to wonder if this is a bubble
about to burst.”
They present arguments and conclude:
“After looking at the arguments of the gold bulls and gold bears, we’re back where we
started—with no clear view into gold’s future direction. But of all the points made by
both sides, the ones that make the most sense to me are the “weak dollar” and “political
gridlock” arguments made by the bulls.”
I have a different take- If you believe that the dollar will weaken further and that political gridlock will continue and is a bad thing then why not hedge against the dollar declines with something that has not had a recent “meteoric” price increase?
Any asset with stable long term value (artwork, commodities, or company that produces commodities, etc.) can hedge against inflation, gold and silver aren’t magical. Why not choose a commodity that has a lot of utility like oil or corn? I’m using real estate (i.e. REITs) as the hedge in my portfolio as I think it is better to hedge with an asset that has had a recent meteoric drop.
As an aside doesn’t political gridlock only allows worthwhile legislation to pass? I fear politicians the most when one party has dominance and can do anything they want.

-Rick Francis

Very good points, Rick. I read over it as well and would agree with your conclusions. Gold and silver are not the end-all-be-all commodity. There are plenty others I'd rather own - especially in the doom-and-gloom scenarios that many people use to sell gold. Copper comes to mind as it actually has a huge number of practical uses unlike gold which has few. Food products are a little more questionable though as they can spoil.

I'm not one for jumping on the gold bandwagon. But if you take their points and apply them to other, more reasonable commodities right now, I would say you're not entirely foolish.

Let's hope that the political gridlock does lead to some useful legislation though. I can't see these problems just fixing themselves!

P.S. I should add I'm not advocating copper. Just an example of a more useful metal than gold...

I understand that printing a ton of money is supposed to make inflation go crazy, but it is not as if inflation has gone crazy since 2009. Here are the latest inflation numbers:

http://www.usinflationcalculator.com/inflation/current-inflation-rates/

Also, if you use 10% CAGR as a standard stock market return, there have only been 3 years in the last 60 or so years where inflation has been higher than what you expect to make in the stock market. Why is inflation driving people to be so irrational about non performing assets? This is not a sarcastic question -- I'd really like to know.

http://en.wikipedia.org/wiki/File:US_Historical_Inflation.svg

When "buy gold" commercials pop up all the time and "buy gold" stores pop all over the place, no doubt we have a big bubble. Just like when "investing in oil" was all over the place, that was exactly when to jump ship.

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