| TEHRAN, Iran - Iranian president
Mahmoud Ahmadinejad shocked the world today when
he, all of the sudden, decided to wind down his
country’s nuclear program and make peace
with the West. “Today I have decided to
replace our plans for nuclear energy with eco-friendly
wind power. Furthermore, I look forward to my
upcoming trip to Tel Aviv where I will introduce
a free trade agreement for the greater Middle
East.” Markets reacted immediately sending
oil back down to $40/bbl and gold to $300/oz as
tensions in the region have evaporated.
The preceding scenario is obviously
fictitious, but you wouldn’t guess it based
on the mainstream media’s reaction to rising
commodity prices, especially gold. For the past
few weeks, as gold has inched its way closer to
an all-time high set over two decades ago, the
talking heads have cited events in Iran as the
catalyst for precious metal price increases. If
tensions were to suddenly cool down, then everything
would be hunky-dory in the world of rising commodity
prices. Okay, maybe we can buy this argument for
crude oil, where the price per barrel likely has
a small unquantifiable geopolitical risk premium
built into it. But for gold, this argument is
hogwash.
We have all read reports of upper-class
Iranians stockpiling gold as tensions continue
to rise, but this shouldn’t really have
much of an effect on the price level as Iranian
demand is a rounding error in the world of gold.
The reason why gold has
more than doubled over the last four years has
to do with the diminishing amount of confidence
in paper assets, namely those denominated in U.S.
dollars. Savvy investors in Asia and Europe
are very much aware of the risks of holding dollars,
yet most of us in the Western Hemisphere are still
asleep at the wheel. Ninety-nine percent of Americans
haven’t got a clue about gold. Maybe 1 out
of 1000 Americans under the age of 40 even know
what a Kruggerrand is – yet the media is
portraying those who buy gold as doing so for
Iran protection.
Gold and silver are gaining in popularity
as the price rises, but we are nowhere near the
media saturation levels of real estate or stocks.
When the mainstream media wakes up to gold, only
then will we hear about price increases resulting
from a lack of confidence in paper assets rather
than tensions in Iran.
May 3, 2006
Todd Stein & Steven McIntyre
Texas Hedge Report
*****
Todd Stein & Steven McIntyre
are internationally known analysts and editors
of The Texas Hedge Report, a market newsletter
that highlights under and overvalued securities
in the equity, bond, currency, and commodity markets
For more information, go to http://www.texashedge.com
|
