	Generational Dynamics
	Forecasting America's Destiny ... and the World's

\| HOME \| WEB LOG \| COUNTRY WIKI \| COMMENT \| FORUM \| DOWNLOADS \| ABOUT \|

Generational Dynamics Web Log for 2-Apr-06
Gold skyrockets to $588 per ounce, highest in 25 years

Web Log - April, 2006

Gold skyrockets to $588 per ounce, highest in 25 years

It's one more sign that investors are becoming increasingly risk-averse.

Gold Prices - 2002 to present

Gold Prices - 2002 to present

As the adjoining graph shows, the price of gold in mid 2005 was about the same as it had been at the beginning of 2004, 18 months earlier.

Then it began to increase dramatically, and has been reaching successive highs since then.

On Friday, gold reached its highest price in 25 years, $588 per ounce.

There are many things that affect the price of gold, since it has many industrials uses as well as being an investment vehicle. And we have to remember that the price of other commodities has been going up in the last two years, mainly because China has been sucking all the oil and metals that it can acquire.

For those reasons, this increase in the price of gold as an isolated event wouldn't necessarily be significant.

But when combined with all the other indicators of increasing investor risk-averseness, we have to add this to the list:

New home sales and prices have fallen dramatically for four months, indicating that the housing bubble burst last October.

As I last last described in January, the stock market composite P/E ratio started falling. This indicates that "something happened last October" to cause investors to be willing to risk less money for a given return.

Now, in the same time frame, the price of gold started rising rapidly.

Putting these together indicates that towards the end of last year investors became increasingly nervous.

This is exactly what Alan Greenspan warned about last year in August. He warned about the stock market and housing bubbles as follows:

“To some extent, those higher [stock and housing] values may be reflecting the increased flexibility and resilience of our economy. But what [investors] perceive as newly abundant liquidity can readily disappear. Any onset of increased investor caution elevates risk premiums and, as a consequence, lowers asset values and promotes the liquidation of the debt that supported higher asset prices. This is the reason that history has not dealt kindly with the aftermath of protracted periods of low risk premiums.”

What Alan Greenspan described is happening. Investors are becoming more cautious, and will support demands for loans to be paid off. He says that "history has not dealt kindly" with the situation we're in, and a financial crisis could develop next week, next month or next year.

As I've been saying since 2002, Generational Dynamics predicts that America is entering a new 1930s style Great Depression, with a stock market crash to the Dow 3000-4000 range by the 2007 time frame. I certainly have no reason to change this prediction now, especially with public debt and the trade deficit continuing to grow uncontrollably and exponentially, and with investors becoming increasingly risk-averse. Even Alan Greenspan might agree.

It's now the beginning of the second quarter, and corporate earnings reports will be coming in. Corporate earnings have been astronomically and unsustainably high for over ten years now. As these reports come out over the next few weeks, we'll see if they continue their high-wire act, and whether investors continue to put their faith in the stock market. (2-Apr-06) Permanent Link
Receive daily World View columns by e-mail
Donate to Generational Dynamics via PayPal

Web Log Pages

Current Web Log

Generational Dynamics Web Log for 2-Apr-06 Gold skyrockets to $588 per ounce, highest in 25 years

Web Log Pages

Generational Dynamics Web Log for 2-Apr-06
Gold skyrockets to $588 per ounce, highest in 25 years