Thursday, May 04, 2006

Gold!!!!

Never in my wildest dreams could I have ever expected the value of gold to be over $400.00 an ounce. Let alone $675.00 an ounce that it is today. Gold, since its removal as an economic staple, had become a bastard child indices. A key figure when evaluating inflationary risk (therefore, a hedge against inflation) within the economy, but not more than that. A run-up in its value was considered inconceivable- at least during my studies in the early 90's.

Nevertheless, we are seeing a massive increase in its value. Just incredible numbers. While, at the same time, we are experiencing a like-kind increase in other commodities; silver, platinum, copper, nearly all raw materials. Furthermore, we are now experiencing, first hand, the rising values of crude oil. I paid $3.25 a gallon the other day.

On the other hand, we have not seen a real appreciable rise in inflation. Those pressures have been tempered, at least for now. What is it that is keeping values in check? Is it the rising productivity of our employees? Maybe its some of that. Improved productivity of industry in general; whether it is at home or production abroad? Its probably some of that also. Could it be the stability of real wages in America? The fact that the average wage of working Americans has not increased at the same pace of corporate executives is a telling signal. In fact, this might be the most important factor. We are more productive as a people and a country, but those achievements and resulting benefits have not trickled down in-kind --- to borrow Mr. Laffer's term --- in the form of higher wages for the working class. What does this all mean?

Beats me! I can't tell you I'm an expert in all of this, and I'm sure I've missed some important factors and subtleties. Nevertheless, there's gotta be a backlash, no? Of course, maybe as long as we don't see inflation people won't notice.

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