Buying Gold in Uncertain Times

Bill Bonner 

Dow down slightly yesterday. Oil falling further below $100. And gold still going up.

What is most interesting is the movement in the price of gold. It seems to be heading up again – almost no matter what else is happening.

So, let’s look at what might be going on…

If investors sensed a recovery…they would expect banks to lend more freely…people to shop more freely…and prices to rise.

This would raise consumer prices; the price of gold should go up.

But if the market sees growth and inflation ahead, why is oil slipping? And why is the Baltic Dry Index – which measures shipping prices – at a 25-year low? And how come last month’s employment figures were disappointing? And why aren’t stock market prices going up?

Most important, if the economy is really recovering, why is the 10-year note yielding only 1.82%? And what about the long bond? Shouldn’t it be trading at a yield higher than 3%?

And how come house prices fell over the last year…and the last month?

And how come incomes are falling?

Or, to look at it from the opposite point of view, how is it possible for a real recovery to take root in the hard, barren soil of falling house prices and slipping consumer earnings?

But if the economy is not improving…then there should be no increase in inflation…and no pressure on the price of gold, right?

Maybe investors don’t anticipate a recovery at all. Maybe they’re buying gold because they see the economy getting worse, not better. We associate a rise in the price of gold with inflation. But gold is much more versatile than we think. It protects your wealth when paper money loses its value. It also protects your wealth when paper money gains in value. It protects you when you are right…and when you are wrong.

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