Gold as an insurance against inflation

Why buy gold? For me, gold is just another form of insurance against inflation. Real assets such as crude oil, Asian real estate and commodities are also used to hedge against inflation.

Gold will hit US$2.5k eventually and, probably, go higher in the years to come. The current inflation adjusted value of gold compared to the high achieved in 1980 should be about US$2.4k now. We are about halfway there. If we believe that inflation is going to be a big issue in the coming years, it's a no brainer that gold is on a long term uptrend. Real value of gold

However, I'm not overzealous about gold because I am not living in the USA or HK, making US$ or HK$. I am living in Singapore and making S$ which will appreciate against US$ and HK$ in time. This makes gold investment less compelling for me.

Frankly, I still prefer trading in the stockmarket and buying undervalued and/or strong dividend paying stocks for now. My gains in the stockmarket so far this year have outperformed gold or silver. Cashflow is also something I get from my stockmarket investments that I do not get from gold. However, all parties will come to an end. Will have to know when to exit the stockmarket.

Crude oil to hit US$100

I've mentioned before that Darryl Guppy predicted that crude oil will hit US$100 after Christmas based on TA. Now, from a FA perspective, John Kilduff, co-chief investment officer of Round Earth Capital said on 24 Dec 09 that:

"I'm worried about several geopolitical fronts out there that are going to stoke crude oil prices. I think first above $85 real quickly [in 2010], and then I see oil possibly at $100 by the first half of the year."

A strong outlook for crude oil would limit any downside in the price of crude palm oil. I continue to believe that there is limited downside (support is at 46c) for Golden Agriculture as it tries to break resistance at 50c.

Separately, this is taken from an article in Business Times (Malaysia), 25 Dec 09,
Palm oil prices up after 3 straight days of losses

Malaysian crude palm oil futures jumped 2.2 percent on Thursday, after three consecutive days of declines, as higher crude oil prices and a weaker U.S. dollar lifted the market.

The benchmark March contract on the Bursa Malaysia Derivatives Exchange settled up RM54 to RM2,554 per tonne after going as high as RM2,573.

“Crude oil is bound to touch 80, sooner or later, and the palm oil traders left in the market are speculating on this,” said a dealer with a foreign commodities brokerage. “We are still quite strong on the demand-supply scenario.”

Expectations of a stock drawdown due to the end of the high production season supported the market. Traders expect stocks to fall about 13 percent to 1.68 million tonnes in December compared with the previous month.

I would accumulate Golden Agriculture on weakness, if any.