Gold and Forex, Sitting in a Tree…

6 Oct

There seems to be something dangerous brewing in gold and in foreign exchange markets, at least as it pertains to individuals trading this stuff themselves and betting big. It is now far too easy to “play” in both areas and many of those venturing in now may be setting themselves up to be burned. The foreign exchange market is the world’s biggest casino, where leverage magnifies gains and losses to the point where fortunes can be (and are) won and lost in a matter of seconds. The dollar has been moving lower with remarkable consistency, lulling some to believe in a “can’t lose” trend. Danger, Will Robinson.

Gold, on the other hand, strikes me as incredibly bid up, and there are no shortage of brokers there to help (exploit) the individuals scrambling to buy gold. Something tells me when the people facilitating the transactions make more than the investors, there is some froth in this market. While leverage is not inherent to this market as it is with forex, today’s “investors” strike me more as the final group in a giant Ponzi scheme. It all comes down to price. Note that investors at the gold’s height in the early 80s need a $2,000+ gold price to merely break even on their purchases almost 30 years ago.

Television and radio are now replete with advertisements for gold buying services and forex trading. Some caution is warranted in these areas; I would expect surprises to be the rule rather than the exception as we move forward. Reversion to the mean can be powerful.

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