With stock markets being blown to bits worldwide, should you move your money into the safe haven of gold? Many investors are doing just that, but there are a few things you should know first. Gold is supposed to go up when stocks and the U.S. dollar go down. It's also supposed to glow more brightly when the economy goes dim.
In the shocker of all shockers, Money Magazine and Wall Street Journal financial writer Jason Zweig didn't bash gold as an investment after being provided with the perfect opportunity to do so when he recently appeared on the PBS Nightly Business Report.
For many, many months (perhaps years) Mr. Zweig has dismissed the yellow metal as a relic of history, better suited to a period back before governments and central banks had tamed economic cycles and eliminated financial crises.
Apparently, recent events have changed his view. If not completely, at least a little bit.
When asked by Susie Gharab "why gold doesn't always glitter", here came the reply:
But just look at what has happened lately. Let's say you bought gold in March, when you were worried about the exploding U.S. budget deficit, the erosion of the dollar and the collapse of the global financial system. Many pundits were predicting that gold would go to $2,000 per ounce. You paid just $1,000 an ounce.
Since March, two of America's top five investment banks have gone under. The Dow has lost roughly a third of its value. Housing prices have continued to plummet and the government has committed roughly $1 trillion to bail out the financial system. Every one of your fears has come true, and then some. So is gold at $2,000 an ounce yet? Far from it.
Gold is now trading well below where it did in March. The lesson here is that you can be 100 percent right and still lose money if you pay too much for an investment in the first place. The best time to buy gold is not when everyone is going ga-ga over it, but when nobody wants it. Nothing can be trendy and a safe haven at the same time. I'm Jason Zweig.
Knowing what he'd written on the subject (I've had a file full of anti-gold comments by Jason but have never gotten around to writing up anything on the subject) it seemed sure that "the lesson here" was going to be that the yellow metal was as useless as ever, but it wasn't.
The lesson was to buy low ... interesting.
And that part about "you can be 100 percent right" ... even more interesting.
Mr. Zweig is also known for having provided the excellent commentary for revised editions of Benjamin Graham's classic The Intelligent Investor.
This article has 11 comments:
Strange how this 'sage' advice is rarely applied to the stock market, where "buy & hold for the long term" is the generally accepted rule.
I wonder what was Mr. Zweig thinking back in Q3 of 2007 about paying "too much" for the S&P 500 or Dow?
At least he's bluntly frank about what sort of confidence you should have in his thoughts in his website's disclaimer:
"DISCLAIMER
JasonZweig.com is my place to tell you what I think about a whole lot of investing stuff. I’m the only one responsible for my opinions, but I can’t guarantee they’ll always be right. If you don’t like what I say or it turns out to be wrong, I’m sorry; you can’t sue me. The material you find here is not meant as specific investing advice for you, and if you use it that way and something goes wrong, that’s your problem, not mine. "
If only politicians were this honest.
Gold is about in the same place as the stock market was in Oct of 2007.
Canwest News Service
Published: Monday, October 27, 2008
Shops are refusing to accept Zimbabwean currency after it depreciated at its fastest rate at the weekend. While millions of rural Zimbabweans are already going hungry, the move by supermarket owners is adding to the hardship of the urban population. Most do not have access to foreign currency, such as U.S. dollars or the South African rand. The country's hyperinflation is driven by the central bank printing ever more money to fund the government's activities.
And of course it can't happen here.....
Harare - Zimbabwe's gold mining industry, Africa's third biggest nine years ago, is on the brink of 'total collapse' because the country's central bank refuses to pay for the gold it buys from the mines, the mines' representative body said Monday.
An angry statement issued by the Chamber of Mines of Zimbabwe accused the Reserve Bank of Zimbabwe (RBZ) of 'deliberately' ruining the industry.
Gold mining companies are obliged by law to sell their gold to the central bank, but for the past two years it has been falling behind on payments 'due in terms of official policy to be made four days after delivery.'
It now owes more than 30 million dollars to the predominantly-foreign owned mines. Some had not been paid for a year, the chamber said. Annual production had fallen from 30 metric tons annually in 1999 to a forecast of less than 3 metric tons this year.
'This has been happening because the RBZ has failed for pay for gold delivered, resulting in all the mines being unable to sustain production.'
The industry was now 'entirely decimated,' it said, calling the situation 'a travesty of justice.'
RBZ governor Gideon Gono, one of the key figures in President Robert Mugabe's Zanu-PF party, had rejected repeated requests by the chamber for a meeting, it said.
Gono has been using central bank money to import thousands of tractors and other agricultural machinery, which are handed out at virtually no charge to members of Mugabe's clique.
Three months ago, judges were allocated mammoth plasma televisions and senior state doctors were given top-class imported sedans.
The country is in accelerating collapse, with inflation running into many millions of per cent, a currency that has fallen to a fraction of its value in three months, an estimated three million people requiring food aid and a cholera outbreak in the capital, Harare.
Gono's policy of printing money to make up for the shortfall in government coffers is seen a key factor behind the meltdown.
Zimbabweans had been hoping that Mugabe's agreement in September to share power with the opposition Movement for Democratic Change (MDC) would attract the aid and investment needed for a turnaround. But seven weeks later, the two parties are still disagreed on the make-up of cabinet.
'It is not understandable that at a time when the country requires as much foreign currency as possible, the gold sector, which can generate foreign currency, has deliberately been brought to its knees,' the chamber statement said.
Without payment, mines were unable to sustain operations, the Chamber said.
'Most gold mines are now unable to meet wages and salaries of their employees,' the statement said.
Exploration had completely ceased and most underground mines had flooded, because they cannot pump out water seeping into their shafts.
So in other words, supply and demand having nothing to do with it, the only thing that affects the gold price is its correlation to something else, which has only behaved this erratically a few times in the last 150 years.
Ahh the comedy.
I'm buying the yellow and white metal. Anyone wanting to sell,please let me know!