Now that the gold price has reached $1500 an ounce, some folk have started to warn that this is far too much of a good thing and disappointment is due. Perhaps they are right, just like the rating agency that announced this week that they were getting a little concerned about the US government’s ability to repay its debts. Before getting too alarmed, please recall that this is the same agency that a few years ago was plastering triple-A ratings stickers on bundles of particularly toxic sub-prime mortgages. Also please remember that the American government can and does get the Federal Reserve to print all the dollars they need to pay their bills. Is it this last fact that is causing people all over the world to exchange wads of folding stuff for bars and coins of the dense and rare yellow metal? Demand for gold is definitely exceeding supply. Even the US can’t just keep printing their currency without its value declining.
The prices of most commodities, including oil, our most popular consumable, are not displaying any particular panics or spikes when viewed relative to each other. It is merely that we now need more cash to buy the same amount of stuff. Isn’t this phenomenon called “inflation”? It does seem to be seeping back into our lives after many years of being more or less ignored. Interest rates may be over their low phase. In fact the European Central Bank has already taken a baby step upwards.
Despite the majority of companies, particularly locally in SA, releasing decidedly pedestrian results there has been a recent surge in demand for shares,. Equities probably do offer a reasonable hedge against inflation. In the long term, the All Share index does outperform the consumer price index.
Yet another type of exchange traded fund is coming to the JSE boards. The traditional structure and format of Unit Trusts is increasingly feeling outdated.. Readers know that I am a fan of ETFs. It is it very hard consistently to pick individual winning stocks and having a cheap and liquid way to gain exposure to a portfolio of the biggest and best of breed is very attractive. What we don’t need however is the situation where there are more ETFs than individual shares. This happened in the Unit Trust industry and has probably helped fuel its demise.
Anyway this is all too serious on the eve of a four day weekend that is going to be followed by what will probably turn out to be almost a zero day week. Please keep safe and if you live in Joburg the good news is that the garbage collectors have decided to return to work. Mind you there are now some threats that widespread municipal strikes are likely in the run up to Election Day next month.
By the way, a quick trawl through the websites uncovered just as many pundits forecasting $1600/ oz gold as are promising that the end of the gold bull is nigh. Take your pick. Personally, I think he is healthy but in no hurry at all.
I was baffled to read that one of the objections to using hydraulic fracturing techniques on the deep shale in the Karoo was that it might cause methane leaks into the environment. Well yes. Methane is what the oil companies are looking for. And hopefully not very much will leak because that’s what they want to sell.
I listened to an expert suggesting that Super 15 rugby as a concept and tournament is so good for the game that in a few years time it will expand to include northern hemisphere teams. That may be so but first they will have to do something about the calendar which currently has only 52 weekends on which to hold matches.
James Greener
21st April 2011
