Gold Bugs vs. Gold Haters 38 comments
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Gold bugs everywhere, this week's contrarian chronicle by Bill Fleckenstein will be music to your ears.I agree with BF that there are a lot of rabid, irrational gold haters out there. I guess it's only fair in the sense that their existence is probably a reaction to that of the equally rabid and irrational end-of-the-world, back-to-the-stone-age variety of gold bugs.
However, what the bears seem to overlook is the simple fact that, considering the current global economic and monetary situation, gold is widely perceived, by default, as the only stable currency. Given that perception, it's only normal that it should rise (and it has been all in all a gentle rise so far: gold doubled in the last 5 years) against all fiat currencies.
As Warren Buffett so eloquently says in his latest letter to the Berkshire Hathaway shareholders:
Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once-unthinkable dosages will almost certainly bring on unwelcome aftereffects. Their precise nature is anyone’s guess, though one likely consequence is an onslaught of inflation.
That's why I truly believe gold should be a fixture in every investor's portfolio. Should the rise go parabolic, which very well might happen in the next few years, I'll have to reconsider. It hasn't happened yet as shown in this weekly chart of GLD, the gold ETF. It has been a little overbought lately as evidenced by the Slow Stochastic indicator, though not by the 14-week RSI. I think what really attracted the gold bears to this chart is the apparent double-top near the nice round $1,000/ounce number (equivalent to a little below 100 for GLD). Therefore, I wouldn't be surprised to see continuing selling pressure, possibly bringing GLD down to last January's low at 78.87. As long as GLD does not decisively break below 70, the 2006 high that proved formidable support during the "Great Liquidation" of Fall 2008, I will hold onto my theory.
Since the Madoff scandal broke, it has become very fashionable to label everything a Ponzi scheme. Housing was nothing but a Ponzi scheme. The stock market between 2003 and 2008 was a Ponzi scheme. So was the oil market. The government bailouts and the stimulus package are giant Ponzi schemes, etc... The Ponzi scheme meme (no rhyme intended) is now being used by the gold bears. The problem with such an argument is that it's not really saying anything... unless you consider that every situation where somebody buys something with the hope of selling it later to somebody else for more money is a Ponzi scheme. Personally, I prefer calling it capitalism.
Disclosure: Long GLD
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But I'm not so sure about a huge spike in gold prices anytime soon, though, as many are predicting.
Just a few years ago when gold shot from around 400 to over 1000 the world was in a commodity boom. Housing prices were rising almost every month.
Now, while some hard asset prices have stabilized, home prices have surely not firmed, and the world is not in a commodity boom.
Take another period when gold ramped to over 1000: the 1970s & early `80s. The economy was in the doldrums after the 73/74 stock market crash, but commodities and housing prices were going up. After they stabilized and/or began going down in the `80s, gold crashed and stayed down until the 21st Century.
I think there may be a problem with our relating the price of gold too closely with the money supply—which has indeed shot up over the last months. This has perhaps been so since the nation deserted the gold standard completely in 1971.
If I’m right about that, then gold is a mainly (but not wholly) a fear investment, and when the current fear subsides (as it surely will), gold will come down in price.
I’d surely like to hear the logical thoughts of some of you who’re more studied in this area than I am.
But please, those of you who’re steadfastly tied to gold and have no desire to listen to another perspective, save the emotional slanders for another time. Let’s work toward getting this investment right. That’s what this site is about.
On Mar 01 11:58 AM ArtfulDodger wrote:
>
>
> If I’m right about that, then gold is a mainly (but not wholly) a
> fear investment, and when the current fear subsides (as it surely
> will), gold will come down in price.
>
>
The USD, in common with most currencies, has lost some 95% of its value in the last century but, during most of this time, increases in other equities balanced this decrease. However, today, there are not a great deal of positive alternatives on the horizon.
As long as gold is reasonably priced (given the increased costs of finding and production) it remains a conservative place to park cash until further opportunities emerge, which eventually, they will. Until such time gold may well even give slight gains.
Fears of a "crash" in gold are unrealistic as the alternatives to it are just too weak today. Fears of a crash in any given currency are, unfortunately, all too real. The optimum strategy, I think, is about 10% of one's portfolio in physical gold (or silver). So far it's been an insurance policy that actually pays a bit of a dividend.
I did not mean to imply that gold is a fear investment only, but perhaps mainly, and that could be the reason its in the 900s now, because fear surely hangs over much of the world today.
Your point is well taken, though, and I think your investing strategy is reasonably conservative and quite proper at this point: 10% in gold.
Thank you for your comment to mine.
The Investment is gold, the move is from $700 to $1,000. A 10% decline is $900, 15% = $850.
If All of you believe that Gold CAN NOT Go Down, then it is indeed a Double Top and Gold is going down Hard.
I believe it is all part of the Base building process which Will take Gold to new All Time highs, to At Least the $1,300 to $1,500 range. But it will not happen tommorow.
As far as the comments regarding how Unpopular Gold is, when the Staffers on CNBC admit to holding gold, then everyone Knows about its Investment Value. It isn't a Secret. Everyone and their mother's uncle knows about it. Taxi drivers, bartenders, Hair Salons, Gold, Gold, buy Gold, do it now! It can only go up.
I do not know whether the time Has come to shake belief up a bit. But it will happen, Use the Opportunity when it comes. UGL, CEF and a multitude of gold/silver producing Junior Miners. IMO
> Silver "may" in the long run be safer to own than gold. Maybe that
> is why every bullion dealer I have visited on the web is asking for
> a 30+% premium for silver coins and only 5 or 6% for gold coins.
> If anybody knows where silver coins can be purchased for far less
> of a premium, please let me know - - I'm finding it hard to swallow
> the 30%.
Go to Bullion Direct. This is a direct buyer to seller market. Silver is usually $1 - $1.30 / oz over spot. Govt coins are $3-4 over spot. It's a liquid market with low transaction fees and no markup except 1% for each trade.
Note: No affiliation with Bullion Direct except as a satisfied customer.
I was at a coin show last week and it was relatively dead in terms of people looking to buy. There is not currently any shortage in Gold. In fact I can buy it all day long if I so chose to do so. There will be panic buying (meaning you wont be able to get it when it happens) once people understand their paper money is seriously devalued. But it seems Americans are in a complete fog of what is going on with the economy. The problem I think is many think this is just a "normal" recession.
I dont think a majority of Americans are actually aware of the likelihood of inflation in the coming years. Nor do most Americans even understand what inflation is and what it means to their lives.
However, I tend to agree with Gold Barron who indicated that gold is available for the purchase should one have the funds. What I see on the horizon is that the depreciation of the dollar (over the next few months) will make those dollars buy much less gold then could buy now. I like the comment made by a multi-billinoaire in precious metals: Buy gold (and silver) and wait. Don't wait to buy gold (and silver)!
On Mar 01 11:15 AM thesnowjob wrote:
> Gold is extremely UNDERVALUED here. Given worldwide money printing,
> scams, frauds and cons, gold is really in the EARLY PHASE of a bull
> run.
>
> Try to remember that 1980 gold adjusted for inflation was OVER $2000
> and the problems THEN were nothing compared to what we've gotten
> ourselves into.
>
> Keep asking yourselves just WHO is buying all the gold. Is it your
> neighbour or your Aunt? No. Gold is being redirected to the new money
> centers and for sure we will never read about that here or anywhere.
You are exactly right in your last point, which is that inflation is not on the minds of most people - few that I have recently talked to are concerned about it. But inflation is the way that the government will be able to impose a huge tax increase without calling it a *tax increase*. A significant tax increase is a political impossibility.
The government is absolutely committed to re-inflating the collapsing debt bubble with...cash in the form of government debt, i.e., more dollars than ever chasing decreasing goods and services, ZImbabwe-style.
Obama and Congress can increase spending at a high percentage of GDP and even promise *tax cuts* knowing that most will pay very real taxes in the form of inflation down the road. This is the *Mugabe Effect* on a much larger scale.
I have seen my monthly costs increase for many things in the last few months, which leaves me doubting that we are in a deflationary environment in the U.S.
For these reasons, right now we have the strongest fundamental I have ever seen for owning precious metals. A significant number of U.S. citizens buying and holding gold will destroy the government's scheme, which is why there is a viable scenario in which gold ownership could be outlawed in the U.S. Not likely, but a scenario.
(I'm now curious, is gold ownership legal in Zimbabwe?)
Disclosure: I have a very small position in GLD and SLV (in an IRA), but I believe that owning the physical gold makes better sense.
Can you be more specific on the Transaction Costs involved? Say for a new buyer with a low volume purchase.
On Mar 01 03:01 PM Gold Barron wrote:
> I wouldn't define 200,000 gold eagles being sold so far this year
> Panic buying. Not in a nation of 300 million people.
>
> I was at a coin show last week and it was relatively dead in terms
> of people looking to buy. There is not currently any shortage in
> Gold. In fact I can buy it all day long if I so chose to do so. There
> will be panic buying (meaning you wont be able to get it when it
> happens) once people understand their paper money is seriously devalued.
> But it seems Americans are in a complete fog of what is going on
> with the economy. The problem I think is many think this is just
> a "normal" recession.
>
> I dont think a majority of Americans are actually aware of the likelihood
> of inflation in the coming years. Nor do most Americans even understand
> what inflation is and what it means to their lives.
On Mar 01 01:54 PM Tetrapod wrote:
>
On Mar 01 12:21 PM HA65MPH wrote:
> I FEAR OBAMMA AND HIS HENCHMAN -POLOSIKI...IF IT GOES SO FAR AS TO
> CONFISCATE GOLD , WE ARE IN REALLY DEEP DOO-DOO..AND IT WILL BE TO
> LATE, I DO NOT WANT TO BE WEARING STIPPED PAJAMAS , IN PRISON, ,,BRING
> ON THE REVOLUTION CITIZENS !!
Revolution already took place. We elected the first black president, remember?
but...the time is coming. Note that right now, the dollar is the most popular currency only because europe cannot reach any kind of a concensus, Japan still has serious problems of their own, and china decided to ride the dollar coat tails. For now, most foreign investors are flocking or holding dollars; hang on for the coming adjustment of foreign sentiment.
Gold may very well go down a little over the next year (due to 'summer exuberance' in the USA) however as this drags on and believe it will, gold will be a bull market for quite a few years.
Disclosure: holding physical silver and adding to it at reasonable market prices.
On Mar 01 03:01 PM Gold Barron wrote:
> I wouldn't define 200,000 gold eagles being sold so far this year
> Panic buying. Not in a nation of 300 million people.
>
> I was at a coin show last week and it was relatively dead in terms
> of people looking to buy. There is not currently any shortage in
> Gold. In fact I can buy it all day long if I so chose to do so. There
> will be panic buying (meaning you wont be able to get it when it
> happens) once people understand their paper money is seriously devalued.
> But it seems Americans are in a complete fog of what is going on
> with the economy. The problem I think is many think this is just
> a "normal" recession.
>
> I dont think a majority of Americans are actually aware of the likelihood
> of inflation in the coming years. Nor do most Americans even understand
> what inflation is and what it means to their lives.
It bothers me that unlimited printing press currency can be thrown into the mix to control real commodity markets. The day that the suppliers of the commodity decide they will not deliver at the paper market price, the game will change for the better.
With gold and silver real holdings you can sleep well at night knowing that it has no counter claim by anyone to your wealth and security, and it will convert to any currency in the world if need be.
The country should have been listening more closely to Ron Paul in all things for a very long time.
North VS South.
Here we are putting out faith in Gold and Silver(Illinois).
In the South, from Texas to Florida similar Runs are Occurring, but not into gold and silver. Weapons are in short supply. From Rifles and Shotguns and pistols and ammo for all, there has been a massive jump to get armed. New weapons ownership permits are through the roof, waiting lines to get into Gun shows, etc.
Children are being taught how to shoot.
This was televised over the Weekend.
I do not know what they are preparing for but it appears to be worse than just hyperinflation.
i don't think it is at all unusual for a father to teach his son to shoot in the south. as a boy i spent many wonderful days with my dad out walking fields and through woods on our farm talking about many things. occassionally we would shoot at something. he taught me to be safe. he bought me my first shotgun and later when he was satisfied with my understanding i graduated to a 22 (more range).
as a teenager i went hunting on a daily basis with 3 friends. one of our parents would drop us off out in the country. at dusk we would start walking home. we walked right through the heart of town carrying our guns or rifles. no one batted an eye. they were just like 'good those boys won't be into any meanness today'.
i guess that is all a crime today.
the 2nd ammendment is pretty plain. i know lawyers like to pretend. the armed population is the final check and balance. this is evident in many writings of the founding fathers.
many fear that the federalis will try to break that right. there were massive guns and ammo sales when clinton took office. maybe buy some stock in ruger, colt, or smith and wesson. i doubt there is civil war brewing. besides if a state wishes to secede shouldn't they be allowed? we claim to be a free country.