Monday, March 20, 2006

Merrill Sees Gold at $850

And if Merrill Lynch says so, it must be true. They talk about the relative ratio between the Dow Jones and the price of gold. According to them, "The long-term target for the relative ratio appears to be 13:1" and it's now at 20:1. Interesting statistics.


[Thanks to sandiego.edu for the image.]

I've been saying that the Dow is over-valued, if only from a price-earnings point of view. Then again, gold is hanging in there, too. The investment option boat is overflowing from both sides -- which is normal, because there are so many dollars filling it up.

The vessel is poised for a sloshing to one side or the other. People are expecting the Fed to raise rates at least once more, but the suspense has unnerved people at the switch. If it happens, they'll breathe a sign of relief and things will continue as is, until some glitch indicates a change in course. If it doesn't and the Fed does nothing (they won't lower rates for sure), both the Dow and gold will be surprised.

No rate action will mean the Fed evaluates inflationary pressures as under control, which should enhearten the loose-money advocates, who will rush to profit from an uptake in stockmarket confidence however shortlived. International confidence and inflation hawks like myself, on the other hand, will take it as a shot in the heart and will be poised for the ensuing exchange rate slip and bond market movement.

In my opinion, gold will win in the long run. Won't this be fun to watch as it plays out.

Source link: theglobeandmail.com.

1 Comments:

Blogger W.C. Varones said...

If they saw gold at $850, why did they tell their clients to go heavily into bonds?

5:16 AM  

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