HardAssetsInvestor

Written by Hard Assets Investor  |

December 31, 2010

Kevin Kerr: Commodities, Gold Are 'The New Reserve Currency'

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Nadig: Some of the touchstones gold investors have used for years to evaluate whether gold is fairly valued or not include the gold to silver ratio or gold to oil ratio. Do these things still make sense in a historical context? Or do we live in a brave new world, where today’s gold-silver ratio is now the new normal?

Kerr: Yeah, many things have changed. They have to be adjusted, but they're still very good benchmarks for a basis of historical standard.

As we move into the new decade, we’re going to have to adjust those numbers to keep up with the changing world economy. S many more people are now able to access these commodities that never were able to before. This is the good side of the double-edged sword, you know. ETFs and equities are more accessible, trading 24-hours worldwide, so more people can access this kind of protection for their portfolio or investment opportunity.

But it’s added a lot of liquidity to these markets, and some volatility. Typically, when we see a lot of liquidity, that’s supposed to reduce volatility. But it oftentimes also brings in a lot of investors who may not be used to these markets. So, we can see some very rapid swings, as we’ve seen.

I don’t think we’ll see a correction as violent as we did in 2008, because I think investors are a little more savvy now, and in it for the longer term. But we do have to remain cautious.

Nadig: Looking into 2011, do you think that the position limits that will eventually get implemented will have any teeth, any impact at all on the futures markets?

Kerr: That’s a really great question. I think they won't, because the funds and other players that want to go around the position limits put in place, have places they can go to do that. It just won't be in the U.S.

I’m a real free market trader, and any time the government gets involved, I tend to get very concerned. I mean, they can certainly do that; that’s their job. But it can also go too far. And, when we start to see too much regulation and too much restriction, then we have the governments running the free market.

I'm not sure how much tape these regulations really will have, though, because we are such a global market, now, that that’s not really going to affect global traders and where they go to get what they need to get.

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