Quick Update On Gold
In our last post (see "More Signs the Bull Market in Gold Has Ended") we commented that the goldbugs were starting to rationalize the price of gold with comments like "It's not gold weakness but dollar strength." Right...
In today's Financial Times we see more proof that the gold market is getting toppy. Gold's primary use in the "real economy" is for jewelry. But demand for gold jewelry dropped by 20% in 2009 -- the biggest annual decline on record! This means that continued price strength in the yellow metal is due purely to speculation and inflation hysteria.
The problem is that there is no inflation.
If there were, it would be reflected in the bond market. The 10-year Treasury bond currently yields 3.7%, and the spread over inflation protected securities ("TIPS") suggests that the bond market sees inflation of less than 2.5% over the next ten years. So, either the bond vigilantes have completely fallen asleep at the wheel, or the gold price of $1,100 is indicative of a speculative mania.
With a divergence like this between the bond and gold markets, one or the other is bound to crack. Our bet is that it will be gold.
Charles Lewis Sizemore, CFA
Chief Investment Officer, Sizemore Capital Management LLC
The views expressed in this post are the personal views of Charles Sizemore and may or may not reflect the investment policies and decisions of Sizemore Capital Management LLC.
Sizemore Capital Management LLC is a registered investment advisor specializing in money management and financial planning for individuals. Please visit us on the web for more information: www.sizemorecapital.com
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Charles Lewis Sizemore, CFA
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