Gold hit a new high too at $1,284, and the yellow metal seems hell bent on taking out $1,300 before it takes a rest. The street was bubbling today with rumours of some leveraged gold traders getting margin calls on their shorts. A major incentive last week was Japan’s massive $21 billion intervention in the foreign exchange markets to drive down the yen. Some believe that this is only the opening shot in a global attempt at quantitative easing in the run up to the November elections that will debase all paper currencies to the benefit of all hard assets.
The silver move carries broader implications in that with 50% of demand coming from the industrial sector, strength here suggests that the economy may be stronger than the “double dippers” realise. I never have been of the double dipper persuasion myself, instead believing that we would get real growth, but growth that is a shadow of its former self (click here for “Here Comes the Square Root Shaped Recovery”).
However, I did expect several double dip scares. That’s why I was pulling the fire alarm about equity exposure in April (click here for “How Can the US Go Up and China Go Down” ). Such a scare certainly showed its ugly face this summer. Perhaps investors are looking at the chart below of 10 year returns by asset class showing that gold has been trouncing all comers since 2000, with the yellow metal bringing in a blistering 343% return, versus a 31% loss for the S&P 500.