Gold for What?

As of this post, gold is trading at $1049 an ounce. Gold is at an all time high (in nominal terms), while almost everything else is trading sideways. Small gains are made by trading one commodity/asset for another.

The U.S. Economy is in a recession. Depending on who one listens to, the U.S. Economy is either turning around, staying in no growth/slow growth mode, or heading to a double dip recession.

So what does one do? Don't listen to the experts. Forecasters can't forecast. There is no way their models can take into account all known variables that affect the economy, much less anticipate all unknown variables that affect the economy. The forecasters don't even know what they don't know. Yet, they run models, flash their faces on CNBC and tell us what is going to happen in the economy. The investment banks had "risk models" that told them they could leverage 30+:1. How did that work out for you as an investor?

Here is what we do know. The price of oil in relation to the price of gold is at 2003 levels, the price of housing in the U.S. in relation to the price of gold is at 1988 levels, the price of the DOW in relation to the price of gold is at 1994 levels.

The money is flowing into gold. Is it flowing into gold because gold is safe in uncertain economic times? A hedge against inflation? In a deflationary environment? Is it a reflection of the inflation caused by the anti-deflationary policies of world governments to stem a deflationary asset base? Who knows? Ask an expert, I'm sure they'll tell you.

What I do see happening, is that there are asset classes on sale; primarily real assets and stock assets. Alternate asset classes continue to get cheap in relation to gold. At some point the markets will shift. Gold prices have been steadily rising since 2001. Investors will shift when they feel other markets have stabilized enough to come out of gold. Monies will flow from gold to other assets. The question is when and to what assets?

If inflation remains a concern, money should flow to an asset class that benefits from inflation - real assets. Currently real assets are deflationary, with commercial real estate expected to further depreciate, unemployment increasing, little to no growth in GDP. However, the $787BB stimulus package is less 20% distributed. The full distribution of those funds will serve to increase employment, spur consumer spending, and stabilize the asset base. This in turn will lead to growth in the money supply and cause inflationary pressures. Real commercial assets benefit from increased consumer spending, and inflation (asset appreciation). The question remains, is it time to sell gold and buy real estate?