Hedging Against Dollar Weakness

iio comments to "Gold Mining for Fun and Profit" -

... I know you are more a trader, but, do you have an opinion on gold as a long-term "investment". I have been heavily invested in gold through an IRA since Nov 2004. I had viewed it as less of an inflation hedge and more of a dollar hedge.

I have watched gold for over 30 years and find that the more I watch the more I'm convinced that if the "gold bugs" knew what they were talking about gold would already be over $2000 an ounce. But that's not to say that their theory of a weakening dollar is not correct. The problem is - in the new economy which is truly global and is only going to get more so - all money is weighted equally. If you put any three instruments on the table and divide the first by the second you will come up with the ratio for the second to the third. When one moves the others move in tandem either up or down as their relationship requires.

What does that mean? Simple - if I have a dollar and it is worth at this moment in time x euros it will be worth 1/x GBP. The Euro will be worth x/1 GBP. And so on. Every movement in every currency is followed by a like movement in every other currency. And what does that mean?

Simple - the dollar can't fail. It can only become weaker against Euro's or stronger against Yen's but it can't fail because it is in a single cauldron of currency.

Currently the dollar is the international currency but slowly but surely in order to reduce the influence of the U.S. in these matters the oil producers are moving to Euro-based pricing - which, because of the instantaneous nature of the spot market doesn't mean jack.

We already have (national pride aside) a universal international currency that is used by every country and it isn't gold. It's this debit card I have in my pocket and have been carrying and using for over 25 years and it doesn't matter where I am in the world I can get cash with it. And I can get cash in the currency of the local economy even though my bank is dollar based.

So, no - I don't think gold is a good investment against a dollar collapse because I don't think the dollar can collapse - it doesn't exist any more - what exists are digits.

So if you want to hedge against inflation or a dollar weakening or even a dollar strengthening my suggestion is this - oil and real estate. And by real estate I don't mean houses or buildings I mean land where houses or buildings might be constructed some day. Find a builder that has a lot of undeveloped land and buy in. And if you can't own a well - own a company that owns wells - or, by using one of the many ETFs buy a lot of companies that own wells.

Otherwise play gold as you would any other stock - when the set-up calls take the trade.

And that's my humble opinion on the subject.

Oil and Water

Actually oil and gold - Oil has been called "black gold" but I bet the people who started calling it that never realized how they would some day track together price-wise as they do now.

Here is oil and gold from a price standpoint (using the GLD and XLE ETFs as proxy)over the same time frame. Oil is displayed on the black line and gold on the (what else) gold line.



And here is a picture of the same price wise action using marlyn's curve. The same colors are used in this picture.




Aside from noting that they seem to move together you will also note that they are rising at this time. Also note that gold trails oil in price moves. So maybe you can use oil pricing as a signal to buy or sell gold. I don't know but that's the way it looks to me.