Gold hit two historic milestones in 2008.
First, in early March, the “yellow metal” hit its all-time high of $1,030 an
ounce.
Just three months later, the price of gold for December delivery had
plummeted to $681 an ounce, a 21-month low and 33.9% drop from its record high.
Most gold bugs were equal parts puzzled and broken-hearted. The world’s stock
markets tanked, as did some of its biggest economies. In such an environment,
they thought, gold should have risen. After all, gold is widely considered to be
a safe-haven investment when everything else is spiraling south.
However, Money Morning Contributing Editor Martin
Hutchinson – an investment banker with more than 25 years’ experience on Wall
Street and a leading expert on the international financial markets – understood
perfectly what other investors did not.
“Gold is not a safe haven against recession,” said Hutchinson. “It’s a safe
haven against inflation.”
In the past year, commodities prices skyrocketed – across the board. That was
especially true of oil, which hit a record high $147 a barrel. Corn, wheat, and
soybeans all hit record highs, as well.
That price escalation tightened household and corporate budgets, and was a
primary reason why the U.S. economy posted a gross-domestic product (GDP)
decline of 0.3%. With that negative growth, the third quarter was the beginning
of what many experts believe will be the nation’s first recession since
2001.
However, the inflation epidemic has waned significantly, as global demand for
raw materials has plummeted.
Price for such staple foods as corn, soybeans and wheat have all come down
from their record highs – in near-lockstep fashion.
Corn futures are down nearly 50% from their summer high of $8
per bushel. The same is true of soybeans and wheat, with each having lost roughly half their
value. In fact, wheat hit a 16-month low in mid-October.
As most of us noticed, gas prices have fallen 48% from their July 17 high of $4.114 a
gallon.
And not coincidentally, gold has fallen 22% in that same time frame.
