The Gold Economy

One area of the market that has outpaced most industry groups is gold. Yesterday, gold hit a new high of $1,309 an ounce, as investors buy every dip in price for the precious metal. My target of $1500 remains unchanged, that’s 15% upside.

The reasons for gold’s popularity are clear. A weak U.S. dollar, a promise of more monetary stimulus from the Fed and an uncertain outlook for the U.S. economy, along with currency weakening moves from Japan and England, have sent investors clamoring for an asset that can protect the value of their wealth.

Current conditions underlying gold’s rise are not

A quick break from the daily reruns here is in order to note the new record high for the “tonnes in the trust” at the popular iShares Silver Trust ETF (NYSE:SLV) that now looks ready to make an assault on the 10,000 tonne mark.

A whopping 510 tonnes of the metal have been added over the last three weeks – more than $350 million worth – as more and more investors opt to trade in their paper money for a paper certificate that represents a share of the SLV holdings. With the metal

Regular readers will know that I shun short-term charts and “technical analysis”. Such tools carry a low degree of reliability, since they are built upon numerous false assumptions (beginning with “free and open markets”, and “perfect information”). I submit to readers that markets have never been less “free and open”, and information has never been so far from “perfect”.

Worse still, almost none of the people who engage in such analysis have any theoretical training in statistics. Lacking such education, they are simply oblivious to how much accuracy is lost with such tools – when we shorten the time-horizon.

Is it just me, or does it seem like every other headline is focused on gold? The rise to $1308 has received top billing and plenty of speculation from analysts on how high it will rise. Silver has joined the party, climbing more than 20% over the last five weeks. The base metals are equally impressive relative to gains as the commodities renew their push higher.

GLD, the SPDRs Gold Trust, has gained more than 30% since breaking above the $1000 resistance in September 2009. GDX, Market Vectors Gold