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| Gold: It's not Iran, Stupid
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By The Texas Hedge
Todd Stein & Steven McIntyre
May 3, 2006
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texashedge.com
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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
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