As Gold Passes $1,265, Where Is The Top? The $140 Crude Lesson

By Douglas A. McIntyre Published Jun 21, 5:15AM EDT

It is easy to forget that, unlike money, there is a limited supply of gold. Government printing presses have been hard at work since the beginning of the recession. The mining of gold may have picked up a bit, but not enough to offset the metal’s run from $900 a year ago to $1,265, a 40% increase.

The notion that gold has increased more than other investments is flawed.The NASDAQ is up more than 30% during the last year, and until very recently that number was well above 40%. A recovering economy and the belief that corporate earnings would rise pushed the index higher at a remarkably rapid rate. Now that there is a concern about the recovery, the index has sold off a bit.

Gold is not so attractive that it has kept the IMF, India, Mauritius and Sri Lanka from selling nearly 200 metric tons of the precious metal since the beginning of the year. Saudi Arabia holds almost twice as much gold as was previously thought. The actions are not unlike what oil traders did when they dumped futures when crude hit $140 in mid-2008. For each sale, there was, of course, a buyer. In late 2008, it was the buyers that got burned.

Gold may be viewed as a safe haven investment, but that is only true so long as capital flees Europe and risky corporate debt in companies that have issued high-yield securities. Oddly enough, corporates default rates have fallen to 1% this year, according to Fitch.

The rise in gold is due to fear. The euro and EU debt may not be good places to put money that is risk averse, but the rapid deterioration of the stock market, US debt, and corporate papers is overblown. These assets are probably safe, sound, and very likely to appreciate unless a double dip recession occurs. At this point, that seems unlikely.

Douglas A. McIntyre

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.