Speculative Trading in Gold and Other Commodities is Hurting the U.S

I love the Contrarian approach to investing and thinking about world and U.S. economics. This is my response to some commentary in a Contrarian web site newsletter.

I like to think of myself as a rational thinker and planner. I write solutions-oriented, mainly Conservative commentary on my blogs.

When the world was young(er) and more trusting (less?) gold was the medium of exchange. Then comes Bretton Woods, where the dollar wound up as the "world currency," the store of value that gold had occupied for so long.

Now, the Millennium.

Either gold is "catching up" to the reality of the world marketplace, or is simply reflecting what has happened to other commodities, or...what?

Some believe that gold is a "go to" commodity when fears of inflation and unrest are prevalent. If that's true, then the horizon for gold prices is the day that world, not just U.S., inflation, moderates, slackens...depresses; when economies are in equilibrium, when there aren't wars over oil, territory, religion.

Other believe that oil has become the new gold, and that perhaps oil, with greater volume, greater utility, should take it's rightful place as a store of value, perhaps usurping gold in the process. What happens when the oil is gone?

But gold, like the dollar, is only worth what folks believe it is worth. When a dollar was "good as gold" loses meaning, and value, than something has to take it's place. Is that gold? No way, there's not enough to finance the world's daily financial transactions. Is it oil? Naaah. Oil is just a commodity in high demand, but current pricing premiums are driven by speculators, not demand.

What then, explains the divergence in currency values over the last few years? Euro up 50%+, yuan up. Wan up, yen up, Dollar down against everything.

Comparing the decline in dollar value against the comparable increases in gold and oil offers a little insight.

U.S. inflation? Naaah. Less than most other countries.

U.S. trade deficits? Maybe. The U.S. owes Trillions in trade and financial exchange debts to countries and peoples who could care less if the U.S. has a hard time of it. There's a thought. Think all those debtors are happy about owning U.S. assets that represent 40-50% less recoverable value than a few years ago?

Back to gold.

If gold represents the "new dollar' in terms of safety, then I for one, consider gold the "tulip bulb" of the 21st century.

So, riding the gold wave is OK for now, maybe, but who gets out first?

Want more reasonably priced oil? Make oil trading one hundred percent cash only, no margin trading allowed.

How much of current gold pricing is speculative trading? 50%? 60%?..70%?! More?

If gold's "utility value" as a commodity, as jewelry, as industrial component, is really $275-300 an ounce, than all the rest of current pricing is speculative "froth" and "cruisin' for a bruisin'."

Even Contrarians get their head handed to them once in awhile, or at least the hand that was in the cookie jar.

Myself? I'm in Jelly Bean Futures. There's always residual value in the eating process.

Maybe we can have a new Bretton Woods (Beijing? Switzerland?) and peg international trading against another currency-the Euro, the Yuan- almost anything would help redress the imbalances we have currently.

Let some other country or association deal with the leadership problems. See how they like it, and for how long.