CRB Commodity Index/Gold Price Ratio Suggests Gold is Overvalued
March 10, 2010 by Editor · Leave a Comment
There’s a saying in the investment business that when the taxi driver and the delivery person are talking about a “no-lose, gotta-have” investment, it’s time to run for the exits. At that point of maximum adoration and comfort, the masses have gone wild and that’s often the warning that the smart money is on its way to the exits and the novices will be trampled in the exodus. Think technology stock bubble in 2000, or house flipping three years ago. Now, think gold. Words: 383
In further edited excerpts from the original article* Gail Marksjarvis (www.chicagotribune.com) goes on to say:
Serious investors always worry when too many regular people start pouring money into a single investment without an inkling about what might drive the price up or down. They’ve simply heard that gold is safe and climbing fast. How can you pass up the magic word “safe” and big profits on an investment?
Some analysts say there are economic conditions in place that will enable gold prices to climb again after this downturn. Goldman Sachs Group’s precious metals team recently said that if U.S. interest rates stay low, that will be conducive to gold prices climbing in 2010 to perhaps $1,350 an ounce but if the economy strengthens and the Federal Reserve raises rates, “gold prices will come under significant pressure” as investors look for better returns elsewhere, such as Treasurys.
What concerns Jim Paulsen, chief investment strategist for Wells Capital Management, is that the frenzy has led to a lack of clarity about what’s been driving gold prices. “Gold has been the answer to inflation; gold has been the answer to disinflation; gold has been the answer to too much debt and to the China bubble,” he said, “but I have never known an asset that was the answer to everything.”
Paulsen said gold clearly is overpriced, and consequently vulnerable to fall. Between 1980 and the present, gold has been trading at 1 to 2.5 times the CRB Commodity Index, which tracks a broad range of commodities. Now, he said, it’s 4 times.
Buyer beware and watch out if you believe gold is safe!
*http://www.chicagotribune.com/business/yourmoney/chi-tue-gold-1208-dec08,0,77237.column
Editor’s Note:
- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
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