Gold hits an all-time high - yet no one's interested

The price of gold has broken out to an all-time high, a fact that's gone largely unnoticed. And it's likely to go much higher in the long run. But which way it turns next all depends on the US dollar. Dominic Frisby explains.

I watched Newsnight with great interest last night. Jeremy Paxman was reporting from the Conservative Party Conference in Manchester. The main concern of the conversation was George Osborne's speech and the 'controversy' of his proposed spending cuts. Then Jeremy went over to the markets.

"Go on," I thought. "Mention it."

"The FTSE closed up 113 points," he said. Nope. "The Dow was up 131 points." Big news, yes, but "The pound fell against the dollar". No surprise there. "Now back to the conference..."

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Gold, the oldest currency on the planet, the one form of money that is not the liability of governments or incompetents, has broken out to all-time highs.

And it didn't even get a mention on Newsnight...

Gold: the best-performing asset class right now

We have had an amazing six months in just about every asset class, except the US dollar. Oil is up, copper is up, bonds are up, stock markets are up, even our miserable, doomed housing market is up. Yet most are way off their all-time highs.

Gold, on the other hand, is at record highs. It remains by far and away the best-performing asset class in this post-bubble environment, as I have repeatedly said it would be. And it didn't even get a mention on Newsnight. Not even a raised eyebrow from Paxman.

Champagne will no doubt have been drunk last night. But it will only have been on some dingy City back road or some tributary of Wall Street. A couple of coin dealers, a futures trader and a wizened old gold bug who remembers the 1970s will have toasted the currency of kings and staggered home with grins on their faces. But for the rest of them, this landmark will pass unnoticed.

It amazes me how many people are unaware of this market, let alone participating in it. What happens when they finally enter it? What happens when pension funds and investment trusts start buying gold?

I remain among my 'cleverer' friends (some of them owned Northern Rock) the eccentric who bought gold. I am still waiting for the day when they come to me asking for mining tips. Long may it be before they do so.

In any case, it's important to enjoy the moment we often forget to. But, come the morning after, as our wizened man from the 1970s will tell you, one would advise some caution. Gold has made a daily close at all-time highs, but we need to see a couple of weekly closes above this level to confirm things.

As I've often said, I still expect gold to go a lot higher in the longer term at the moment I expect $1,400 by spring 2010. But it won't get there in a straight line, and for now, the positions taken by the futures traders on the Comex suggest a top. If stock markets do turn down, they will take gold and gold stocks with them.


  • Why UK property prices are going to fall 50%
  • When it will be time to get back in and buy up half price property

Is the countdown really on for the end of the dollar?

However, it all depends on the US dollar. It has behaved in recent years as the inverse of everything else (stocks and commodities rise, the dollar falls and vice versa). Try as it may, the dollar has been unable to break out of its downtrend.

But now anti-dollar sentiment is reaching hysterical levels. One website is running a countdown to the end of the dollar now just over a month away, apparently. Even Middle East journalist Robert Fisk joined the fray yesterday when he reported in The Independent that the Arabs, Chinese, Japanese, French and Russians have been having secret meetings to trade oil in some alternative 'basket' currency.

How many times must we hear this? Last time it was Iran, and before that it was Venezuela. Meanwhile the Russians and Chinese are continually making noises about 'abandoning' the dollar. If the body you are buying oil from wants some other currency than US dollars and you only have US dollars, then you do a currency exchange. It takes a matter of seconds. What's the problem? Why all the scaremongering? I know a bloke on Oxford Street who'll do it for no commission.

Nevertheless this story did the rounds yesterday and no doubt helped along with the Australian interest rate rise give gold the impetus it needed to move above its old highs. Enjoy it while it lasts.

Just before we go, we have a guest columnist taking over Money Morning tomorrow. Dr Mike Tubbs explains his slightly controversial views on index tracking he thinks it's a waste of time. Instead, he urges private investors to take control of their own portfolios. But how do you pick stocks that will outperform? It's a problem that defeats most fund managers but Mike thinks he has the answer, and it's certainly turned out some great results so far this year. You can read all about it tomorrow.

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