Michael Phelps Wins Seventh Depreciating Metal

Congratulations Michael! You just won seven gold medals now worth 10% less than they were worth at the beginning of the Olympic Games. However, it’s better than having won silver medals now worth 20% less than just over one week ago.

According to the Ishares Silver Trust (SLV) and the SPDR Gold Trust (GLD), silver and gold prices have dropped considerably over the last week and even more so over the last month. So one might wonder, what’s the big deal of winning a gold medal? Well, I’m being facetious of course as we all know, or at least can imagine, the glory that comes from being the top athlete in your sport.

With the global economy showing signs of slowing, commodity prices across the board have come down considerably from many of their all-time highs. Where they go from here is a tricky question to answer since some commodities have indeed been driven by global demand, while others are often viewed as a safe haven during economic uncertainty.

Short of hanging it from one’s neck, there really isn’t much use for gold as a raw material, so oftentimes, the price of gold is being driven by what I call, a residual affect of everything else. If you’re not sure about the economy, invest in gold. If you’re worried about inflation, invest in gold. If you don’t have any confidence in the dollar, invest in gold. Ah, and it is perhaps this last comment that has driven gold prices down recently, as the dollar has shown signs of strengthening, and the European Union has shown signs of slowing. If the EU lowers rates to help spur growth, it will weaken the Euro relative to the dollar and give even more momentum to the recent trend.

Overall, I still like the overall commodity trend. Demand for oil, gas, metals, and some agricultural products will not disappear overnight. Perhaps there was some speculation in these markets and the price is returning to a supply/demand balance, but I think the days of $1 gallon gas prices are long gone, and the world as we know it now is more likely to persist than what the world was just a few years ago.

I am not a market-timer so I would never suggest when to get in or out of a particular investment to take advantage of short-term fluctuations. However, the long-term fundamental trend as I see it is to have some exposure to commodities. And, if you can swim 100 meters in less than 50 seconds and someone is willing to give you gold for doing it, don’t worry that it’s worth less than what it was worth at the beginning of the race. Bow down so they can drape it over your head, sing the national anthem, and smile!!