Heaven, Leprechauns, and Survivalists

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Good Afternoon,

After scaling up to $953.90 on the back of a new record of $115.50 in crude oil, gold prices turned back to the low $940's as the US dollar climbed to near 71.70 on the index. Oil also took a break and traded around $114.75 this Thursday. A $1.96 billion dollar loss at Merrill Lynch in the first quarter has stock investors on edge following yesterday's Morgan/Coke rally of over 255 points in the Dow. The Nikkei average mimicked that performance overnight with a 252 point rise, despite some warnings of an impending significant (20%) slump in Toyota's profits on the back of the conditions in the US market and the rising Yen. However, the stock market remained stalled for most of the Thursday in the US, as did other markets overall.

New York spot gold drifted lower during most of the session and was showing a more substantial $8 near 2PM , quoted at $937.80 bid. Gold's month-old ascent from the $870's has thus far been marked by difficulties and lack of conviction. This, at a time when other commodities are setting fresh records. Participants took the jobless claims numbers which had increased more than was expected, as well as the NY Conference Board's gauge of future economic activity as further confirmation that something along the lines of what took place in 2001 may be in the making, or is already underway. This, despite NYCB's index of leading indicators having shown a modest rise after five consecutive months of declines. The numbers were probably reflecting the effects of the recent injections of funds into the banking system by the Fed. Silver dropped a dime, and was quoted at $18.20 while platinum continued to advance, rising $27 to $2046 and palladium added $1 to $453 per ounce.

Bloomberg reports that "platinum climbed to the highest in almost five weeks in London on speculation power shortages in South Africa will curb growth in supply as demand for the precious metals increases. The nation may suffer a deficit of electricity for seven years, state-owned utility Eskom Holdings Ltd. said yesterday. South Africa supplies 78 percent of the world's platinum, and is also the second-biggest producer of gold.

``It's becoming more and more difficult to get [gold and] platinum out of the ground fast enough'' to meet demand, said Walter de Wet, head of commodities research at Standard Bank Group Ltd. in Johannesburg. ``It's getting more expensive to generate electricity. There is a capacity shortage.''

A story appeared on CNNMoney today taking note of the survivalist instinct and its revival of late, as it relates to gold. The writer, Elizabeth Spiers, opens with:

"There are only three constituencies outside the mining or commodities-trading industries who have historically demonstrated consistent enthusiasm for acquiring gold: street pavers in heaven, leprechauns, and survivalists. I can't speak to the status of the first two, but the last are enjoying a tremendous boom in influence."

Conventional wisdom holds that an ounce of gold can generally buy the same goods over time regardless of how expensive things get, making it a good hedge against inflation. And it naturally follows that many survivalists think inflation wouldn't be as likely a problem in the first place if the dollar were still pegged to the price of gold, as it was until it was unilaterally uncoupled by executive order in 1971.

All this would seem to make gold an attractive long-term investment. Is it? Well, it depends on what you mean by "investment."

She then points out that: