Gold attempting to gain some traction amidst mounting geopolitical concerns

Gold is attempting to gain some traction this morning trading up a little over $2 at $1321.  Silver is up 4¢ at $16.68.  There is much on financial markets’ plate as we begin the week and most of it revolves around growing geopolitical tensions – the Middle East, Iran, Italy and last, but not least, the festering currency and debt problems among emerging countries.

On that last score, Ethan Harris, head of global economics research at Bank of America Merrill Lynch in New York told Bloomberg that “It’s a bit like that old saying: The U.S. sneezes and the rest of the world catches a cold.”  And while primary attention is focused on the other matters listed, and few others we left out, we should also keep an eye on the emerging country issues on the back burner.

Remember the Asian flu?. . . That cold to which BOA’s Harris refers can make the rounds and come back to where it started as something worse. On October, 27 1997, the year many feel sent warning shots across the bow on the general stock market dissolution that began a couple of years later, the Dow dropped 7.2% in a single day in response to the Asian contagion. An equivalent drop today would equate to the Dow shedding 1800 points – once again, in a single trading session – a bit of history that leads nicely into our Chart of the Day further below.

Quote of the Day
“I wish Montagu Norman, Philip Snowden and the monetary experts were admirals or generals. I can sink them if necessary. But when I am talking to bankers and economists, after awhile they begin to talk Persian, and then they sink me instead.” – Winston Churchill, 1924

Chart of the Day

Chart courtesy of

Chart note: This chart shows how many ounces of gold it took to buy the Dow Jones Industrial average from 1918 to present.  At current prices, as you can see, the Dow is more expensive in terms of gold than in 1929, but less so with respect to the 1965 and 2000 peaks.  It took just under 20 ounces of gold to buy the Dow in 1929 and right at 20 ounces at the present. Whether or not the ratio has room to expand is a matter of debate, but for the prudent planner who understands the value of not having all one’s eggs in the same basket, the current levels are inducement enough to encourage some judicious readjustment.

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