What is working so far in 2008? Gold. What is not working? Google (NASDAQ:GOOG). Yeah, energy works, but most managers have "been there and done that." Sorry, no more brownie points for being long energy.
To look like a genius today you need to be long gold, gold miners, gold ETFs or something in that space. Maybe you want to be different and sound smart? Then go long silver (as I wrote this, silver was up 1% more than gold yesterday). After all it has "global growth" industrial uses and investment value (double genius bonus points).
So, CNBC junkie that I am, let me give you an advance copy of Erin Burnett's next 47 interviews: "So genius hedge fund guy, what do you think about gold?" Genius hedge fund guy: "We like gold."
And then we have "retail investor guy". Textbook financial planning preaches "keep 5%-10% of your portfolio in precious metals as a hedge against inflation." Does the average investor have any gold? No, they have a 401(k) or retirement account, a mutual fund and maybe a CD. Maybe they have a "money person," but do the masses get the gold thing?
I recently talked to a friend, a smart businessman, and when I mentioned gold, his eyes glossed over and I heard this: "yeah, that used to be like a thousand bucks, what's it at now, like $350?" The average investor thinks in terms of two choices, being in or out of the market, because he\she is simply too busy working to pay attention.
When will the average investor pay attention to gold? At $1,000! When gold hits $1,000 it will print on the front page everywhere and on every website in headlines that go something like "INFLATION FEARS DRIVE GOLD TO $1,000". At $1,000 it is game on. At $1,000 CNN gets involved (as opposed to CNBC which only you and I watch).
Ok, you want fundamentals. Here is the standard blah, blah, blah:
- Indian jewelry demand.
- Gold ETF may become world's largest holder.
- Central banks are buying gold (or selling or manipulating it depending on who you believe).
Gold is going to $1,000 because we want it to, not because of any fundamentals. It makes for great drama and great headlines: Gold at $1,000! Economy In Recession! Inflation Fears Rampant! We want it, we need it, it fits the mood.
Have you ever held a 1 oz. American Eagle in your hand? It is a truly powerful feeling and you can't help but think to yourself, "this is so cool." Don't buy gold on fundamentals. Buy gold on emotion! Emotion drives the fundamentals, which is the difference between gold and any other long-term investment.