Notes on speculation via the prism of Gold and the USD, with questions about value as short-term wagers versus long-term investment are considered.
Speculative forces eventually run out of power, leaving investors and businesses to conduct their affairs via the assets they are using to proceed with enterprise as they judge fair market price.
Assets like Gold (commodities) the USD (Forex) and equities (corporate shares) are a battleground for those who are trying to make short term profits from price action movement (sometimes - volatility) versus those who are holders of the assets in order to run their lives (corporations, private businesses, finance).
Perhaps the speculative forces are not a Las Vegas environment completely, but it is a strange mix of risk management and gambling. And because of the price changes in these assets as supply and demand are transacted - the realization that the potential of hedging against sudden gyrations in price is used as insurance, but also as a dangerous speculative tool needs to be considered.
Futures, options and cash markets combine and are mixed like a stew consisting of trillions of USD value as global enterprise and financial casinos flourish.
Let's take a look at Gold as an example. There is only so much physical Gold on the planet earth - a finite amount. There is only so much that can be taken out of the ground in a year. There is only so much Gold an individual can safely store in their home, before they have to use other secure venues. Central banks may have backed away from the 'gold standard' but they understand the importance of the precious metal as proven and tested by thousand of years of commerce. Gold can be used as the exchange of value for a good and this will likely remain the case for long time.
The price of Gold serves as a hedge against inflation. The value of Gold today roughly buys you the same things it bought you a thousand years ago, when compared to monetary units which fluctuate like the wind. Because cash in many cases throughout history becomes weakened, losing its value because of bad government policy which causes the people holding the 'paper' to lose confidence; and then creates the desire for the precious metal which has almost entered our conscious DNA as a source of value which doesn't change.
We can speculate on what the Gold price will be today, tomorrow, next year, but we know the fluctuations will roughly equate into what our consciousness - logic - tells us what the main reserve currency that rules the land will be worth - in this case the USD.
For the time being, the USD acts as the reserve currency of the world and is weighed against the value of Gold - literally - remember Gold is valued per ounce in USD.
The ability of Gold to climb to record highs recently was put into question, because at the same time the USD was getting strong. This signaled to traders that a known speculative force in Gold was at play; yes, it could be said a speculative force was at play in the USD too, because of Forex and the Federal Reserve, but Gold rose the past month and a half dramatically while the USD also was gaining value.
Thus, suddenly the inverse correlation of Gold and the USD which are literally weighed against one another was suddenly off balance. The USD was gaining and gold was rising, and one of them was likely 'full of hot air' - an imbalance.
Meaning Gold had become inflated in value perhaps, because of speculative forces. While folks could point to geopolitics, and central banks such as China and Russia and maybe Iran wanting Gold because they are 'angry' at the U.S and want to signal they do not believe in the USD. There is only so much money these speculative forces have, and they hold the USD as a store of value too, which means if they bet too much on Gold they can find their positions - weight - imbalanced.
The USD remains the world's reserve currency, and the value of the greenback particularly as the Fed has come under pressure, via the weight of inflation, and had to admit they cannot cut interest rates until inflation erodes has made the reserve currency stronger again. The use of the USD is easier than using Gold. There is not enough Gold in the world to transact business to business, person to person physical exchange everyday. Thus Gold becomes a 'store of value' via inventories not only in secure facilities but our minds too.
The past couple of days have seen Gold perhaps lose value again as the counterweights have come back into focus. It was bound to happen as long as the USD remains the world's reserve currency in which value can be distinguished versus the commodity.
Speculative forces do run out of power, and now after Gold flirted with the 2,400.00 plus level recently, maybe Gold should return to its values which were seen in late 2023, which is where the USD Cash Index is essentially standing technically. Lets also remember where U.S Treasury yields were during this time, long-term bonds are a measure of interest rates and outlook via the Federal Reserve - used as an insurance and investment vehicle by those looking to lock in 'returns'. Yes, Treasuries can be speculated on too, but their values coincide with USD legitimacy and the Federal Funds Rate.
It is a thought, a speculative notion, let's see what happens. What should the speculative price of Gold be now compared to the USD? Should it be lower, closer to the 2200.00 to 2100.00 USD levels? The casino will give us the answers.