Japan, Paul?

It’s hard to question your long positions in gold and silver, Paul. But Japan?

Just about the only good thing you can say about Japan’s economy right now is that the government there is looking to prop up the market by buying shares in Japanese ETFs. But that’s not exactly a vote of confidence, is it? I’d love to hear the bull case for Japanese equities, because the economy there looks weak to me with precious little to recommend it in the near future. China I could understand, but Japan?

While we’re at it, I have a question on gold. Not being a gold bug myself, I may be naive in my thinking, but I was wondering: Does the recent volatility of gold diminish its attraction as a “store of assets”? Gold volatility in 2008 was 3X the historical average, with bullion prices bouncing around like Cisco in the Internet age. Sure, gold ended the year flat, but if you had the misfortune to buy and sell at the wrong time, you could easily have lost 30% of your money. It ain’t zero-coupon Treasuries, that’s for sure.

That volatility speaks to a bigger point. A recent study by the World Gold Council found that many consumers were rattled by the volatility of gold and were pulling back on their purchases as a result. That, combined with relatively high prices and weak global economic growth, helped drive down jewelry demand in 2008 by nearly 15% on a tonnage basis. That dip was more than compensated for by rising investment demand, driving a net slight uptick in overall demand for gold. But still, jewelry demand makes up 60% of the total market for gold, so a slowing jewelry market is a real issue.

I wonder: With global economies getting worse, not better, and with gold volatility showing little sign of diminishing, is there a risk of consumer demand for gold continuing to dry up? And if it does, do you think growing investor demand can really keep up?

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