Response to Bloomberg's 'Gold May Pay Only in Case of Maximum Despair' 19 comments
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With the price of gold on the decline, flimsy commentaries have started to appear which characterize gold as a fringe bet of foolish people. I am admittedly biased in the opposite direction writing gold and silver blog, but if I wrote a commentary, I would at least make some substantive arguments that go beyond cursory and reckless statements.
I found this recent commentary, written by Jane Bryant Quinn for Bloomberg, particularly egregious, so I would like to examine some of her specific points.
“Gold is for rich guys… you need a lot of it, stored around the world.”
I’m not even sure what she is trying to say here. Why do you need to be rich to buy gold? It can be purchased in sizes as small as 1/10 ounce, which would have cost about $40 in 2001. There is nothing to prevent “poor guys” from owning gold.
Why do you have to store it around the world? A 400 ounce gold bar worth about $288,000 is 7 x 3 5/8 x 1 3/4 inches. This would fit in an average sized safety deposit box. For the “poor guy,” 1/10 ounce of gold is about the size of a dime. You could store it in your pocket if you want.
“Gold isn’t even a reliable hedge against inflation.”
To prove this argument she quotes the price of gold in January 1980 and states that gold has not yet reattained this peak adjusted for inflation. By that same logic, one could state that stocks never have positive returns by quoting the price of the Nasdaq in January of 2000.
“For the average investor, gold boils down to a speculation on higher prices.”
She seems to mention this with a certain distaste. What investment is not based on speculation of higher prices, whether informed, rational, or otherwise? Would you make an investment if you thought prices were going lower?
“Toward the end of each year, [various world mints] let their inventories run down while gearing up for next year’s run. The surge of buyers left them short of high- quality blanks.”
The US Mint has been experiencing problems fulfilling demand for American Silver Eagles since March and problems fulfilling demand for Gold Eagles since August. The problems have been nearly continuous thoughout the year. The reason seems to be that the US Mint cannot obtain sufficient gold and silver on the open market to meet the physical demand.
“On EBay and the Home Shopping Network, coins sell at fantasy prices. A set of Eagles in four different weights was offered on HSN at $4,999.99.”
She lumps eBay (EBAY) into the same category as the Home Shopping Network. The Home Shopping Network is known for overpricing and overpromoting collectible products. EBay is a relatively well informed community of buyers and sellers whose transactions take place in a liquid market. In general, transactions will occur at whatever price the forces of supply and demand will bear. When you’re favorite bullion dealer runs out of gold, why not purchase it on eBay?
“Gold, by the way, is taxed as a collectible… Your tax rate on long-term capital gains would be 28 percent, compared with 15 percent on other assets. Only a significant price gain redeems your bet. “
The 15 percent tax rate she mentions applies to long term capital gains. If you sold stock which was held for less than one year, it would be taxed at your marginal rate which could be as high as 35 percent. And perhaps more relevant, not too many people have long term capital gains nowadays. If you’ve been investing in stocks or real estate, I think you would welcome a gain taxed at 28% rather than a big pile of losses.
Disclosure: Author is long physical gold and silver
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This article has 19 comments:
Buy 'till you puke.
Its obvious Jane Quinn is woefully UNINFORMED about precious metals, in particular, gold. She is, like apparently MILLIONS of investors, unaware of the opportunities of investing in precious metals. As with ANY investment, there are hurdles to be leaped. She doesn't have a clue. Unfortunately, she has been given literary license to vomit her opinion to soil the readership, instead of remaining quiet.
Cesato: You make some strong points, but just remember, sir, hindsight is ALWAYS 20-20! Put your toe in the water first, diving in is USUALLY not a good idea.
In other words, there are no assets that offer a risk-adjusted return. So gold is attractive. Not sure what everyone is getting so worked up over, really; at some point we'll start to see rock solid companies with strong balance sheets and great businesses trading at 4x forward earnings (finally estimated in despair rather than hope), and A-rated paper issued by same yielding 18%. When that happens, gold will no longer be attractive. Not because it's any less shiny or any worse a store of value, but because the opportunity cost of holding it will become positive. The important question is whether, we we finally get there, any of those companies will be American, or whether the US dollar will have any value at all. One could ask the same question about other paper currencies. All the more reason to sit out the crisis holding universal money. There is no reason to pick winners right now, not when governments are trying to outdo one another in their race to thoroughly devastate their economies and currencies.
Gold is not just a speculative play, but is also a sound investment, I hate the fact that their is this huge misconception that you MUST be rich to afford it, and I'm glad you've highlighted that. Gold rises during times of uncertainty. But as other investments posses a lag period, where it takes time for prices to truly reflect its trued value. And in essence one could say that at these levels the yellow bricks are considered undervalued. no?
I read that "Finally, it was reported last week (again I have not been able to verify this) that the European Central Banks sold 7.6 tons of gold in the week ended October 10. If this is true, that ought to have put downward pressure on the gold price"
This might also indicate the sagging prices in the market. But, a word of warning for investors, be ready to pounce, because once gold starts to take off, you'll be saying. Shoulda, Woulda, and Couldas.
It's not only their job, it's required by law.
www.law.cornell.edu/us...
Just like Al Capone was eventually jailed on something as simple as Tax Evasion, Paulson downfall may come from his decision to take physical precious metals out of the hands of Americans.
It's the law, Hank.
I think most market commentators approach gold and silver with a certain amount of distaste, because from the offset it doesn´t appear to have any ¨real¨ value, or at least one derived from a practical use. However, people don´t even blink about spending thousands of dollars on jewelery that contains the stuff.
I´ve never been much of a gold guy, but I must say that after the bailout bill was passed, I jumped on board the precious metals train, because frankly I´m very uncertain about the dollar. Its recent rise has been truly strange as well, and I´m wondering if this might be another irrational bubble caused by panicky investors picking a safe haven. When the dollar does fall down, it´s going to be gold and silver that are going to step in.
"(1) In general.— Not later than 6 months after the date of enactment of the Presidential $1 Coin Act of 2005, the Secretary shall commence striking and issuing for sale such number of $50 gold bullion and proof coins as the Secretary may determine to be appropriate, in such quantities, as the Secretary, in the Secretary’s discretion, may prescribe."
Notice "shall commence", *but* "such number...as the Secretary may determine to be appropriate..." etc. As it says, it's about the Secretary's discretion. There's no minimum number specified. "Shall commence" could be fulfilled by minting a single coin.
The Secretary's discretion applies only to the $50 American Buffalo Coin. I was referring to the American Eagles (silver and gold)
(1) Notwithstanding section 5111 (a)(1) of this title, the Secretary shall mint and issue the gold coins described in paragraphs (7), (8), (9), and (10) of subsection (a) of this section, in quantities sufficient to meet public demand...................
Stammerin' Hank is a crook, but I think it's nice that you trying to defend him.
If so, one wonders where the supply to mint same is coming from or more importantly whether the Inventory number is fictional to begin with?
But I'm in GLD at 775 - I'd been waiting for it to go below $800. I've got another limit buy set at just under $700. If it drops more - I'll buy more at $650 and even more at $600 - (if it ever goes that low).
But unlike most other equities - commodities like gold will NEVER, EVER go away. I just bought down on AMD because my former price basis on it was ridiculously high - But will AMD still be around in 10 years? I don't know - but you can bet that gold will still be around.
BTW, watch out for a sharp drop in GLD, there's another Alpha thread around where The Talk is that the GLD ETF appears to be malfunctioning. They are holding onto more gold than they should be or some such.
"in quantities sufficient to meet public demand"
Who decides what "sufficient" means? Demand is met at what price? See what I mean?
Gold has been setting record highs in pounds and euros in the last few weeks, it's only gone down dramatically in dollars, which are obviously going up as dollar denominated derivatives need to be unwound, and hedge funds repatriate all manner of international trades for dollar redemptions.
So it's actually holding up better than just about anything else. Check Platinum, Oil or real estate for comparison. Having said that, the premium on gold coins make them an inferior investment. The 400oz bar market is still quite liquid, and there are several ways to get allocated gold at very small premiums to 'good delivery' bar prices. I some cases you can buy in 1 gram increments, which is about $23 .
Trusting Banksters is certifiably insane.