Gold

With the scent of crisis the Gold Bugs are emerging from the woodwork once again. They've had a couple of false starts in the last few years, when it was finally going to be the turn of gold to soar above everything else, but their expectations are usually dashed.

It was General Jaruzelski who put me off gold as a place to go in a crisis. When he declared Martial Law in Poland in the winter of 1981, the gold price had been rising steadily for four years, on concern about the Middle East, and the economic policies of the west. So here on top of all that you have the growing threat of a populist movement in one of the biggest Warsaw Pact countries, the name Lech Walesa being heard on everyone's lips, concern about whether the Soviet Union would allow any kind of rebellion and give the general a hand with a few tanks and what does gold do? By January 1983 it had halved. The dollar was the new safe haven and in my opinion the only thing that will change is that the euro and the yen will increasingly become safe havens too. A flight to quality means investing in government bonds not in hedge funds. Remember gold doesn't pay interest.

There will be some upside in gold because it is being used as a short term hedge against the dollar falling, but these positions will unwind. Expect it to go up $50-100 then fall back again.