 Gold: It's Not Iran, Stupid
Todd Stein & Steven McIntyre
The Texas Hedge Report
May 3, 2006
Courtesy of www.texashedge.com
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 Krugerrand
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
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