Gold: to buy or not to buy
Thursday, July 24th, 2008
Image credit: Bank Negara Malaysia
The economic downturn that we’re are facing now have a lot in common with the 1980s recession.
I just found that out because today, I got hold of a sum of money which I don’t need to use at the moment. I was thinking what to invest this money into. Considering that inflation shot up to more than 7% last month, investing in unit trust and other interest-bearing deposits would result into me making a great loss since their effective rate of return (per month) won’t compensate the surging monthly inflation which “economists” expect to remain high for awhile.
Then I thought of buying some gold coins. That, apparently, not a good option either. In late 1970s / early 1980s, during the economic downturn, the price of gold sky-rocketed to around $800 per oz. only to go down to about $300 per oz. a few months later and stabilised around that for many, many years. It has been increasing rapidly since Q4 last year and has now reached over $1000 per oz.
Looking back at the past:
The Iranian Revolution sharply increased the price of oil around the world in 1979, causing the 1979 energy crisis. This was caused by the new regime in power in Iran, which exported oil at inconsistent intervals and at a lower volume, forcing prices to go up. Tight monetary policy in the United States to control inflation lead to another recession. The changes were made largely because of inflation that was carried over from the previous decade due to the 1973 oil crisis and the 1979 energy crisis. - Wikipedia
The 1980s recession had got to do with world oil price hike. We just need to be a little patient.
So unless I am saving this money for the next great economic downturn probably only coming in about 20- or 30-year time, there’s no point to buy gold now. So what should I be spending the money on? Should I invest in China or should I go watch Olympics in China?
By the way, the “economists” are pressuring the Bank Negara to increase interest rates. I can see the logic but please don’t foolhardily increase it to 7% right away like what that other pseudoeconomist did to our retail oil price. Maybe the Bank can consider increasing it just a little bit lower than 4% by the end of this month, then gradually to 5% in September and 6% in November and keep that until end of this year. By next year we can reduce it back regressively to a favourable rate since they say it will start to soothe by then.
N.B. This account is purely from my college-level knowlegde in economics. If you’re in doubt, go find Mankiw.
Ah, I just remembered that they are having a sale in the mall now and I do need some new clothes. Economic downturn supposedly make you skinnier but I grow fatter. 