Tuesday, October 11, 2011

Gold has Changed

The article "Gold bugs beware - The Gold bubble is finally bursting" in the Financial Times argues that the gold bubble is about to burst. I would agree that gold is in a bubble phase, but I see it as a lesser evil than other forms of investment and wealth protection. What the article does bring to ones attention is that gold today is not what gold was a decade ago. Gold has changed a lot due to the creation of popular ETFs such as GLD. Now gold has become an electronic digit on the computer, it can be bought, sold, repackaged, options taken with the click of the mouse or the stroke of a key. It has turned gold into a speculation. Even those of us who dislike the idea of speculation have to live with this new fact. The burdensome and limiting process of a physical object has become a 0 or 1 sent through the Internet at the speed of electrons. Now its here, now its not. It is bought and sold like any other share thousands of times a day when its value moves a cent up or a cent down. With this in mind we can forget anything we know about gold and forget all the lessons learned from gold in the past. Gold isn't gold anymore. Gold is riskier than ever before and it might bring to light many unexpected surprises. Still what is one going to chose for one's personal pension or long-term nest-egg: dollars, Euros, government bonds, oil, real estate, silver or gold? One option looks worse than the other. The least frightening option might still be precious metals.

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