Buy Gold on Emotion, Not Fundamentals!

What is working so far in 2008? Gold. What is not working? Google (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).

Boring!!!

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.

Comments

[lifa:]

Funny but interesting...

2008 Jan 09 10:22 AM

[robert99:]

Truly an article which deserves a LOL.

2008 Jan 09 11:51 AM

[Hugh:]

Emotions are fundamental. Fear is a big driver of all markets, maybe the biggest driver of all.

2008 Jan 09 03:20 PM

[GaryD:]

Emotion drives the fundamentals??? No Richard, an incompetent Federal reserve drives the fundamentals by pumping up the money supply faster than the economy can absorb it. I hate owning gold (boring, no return, no story, no nothing), but I do because I think that the US dollar is being undermined by a bunch of retards who have somehow taken over the Federal Reserve and Congress.

2008 Jan 09 08:07 PM

[Richard Shi...:]

GaryD, I don't disagree. In fact, you are dead on. The Fed\Congress are in a box of their own making. My point-beyond the sarcasm-is that gold as an investment class is not well-known. Most retail investors simply do not own gold but when it hits $1,000 it will be front page news and it will come on the radar-and now, as opposed to the 80's it is a lot easier to invest in with these etfs, etc.

Personally, I also prefer picking stocks and analyzing companies..but here we are both owning gold..sign of the times.

2008 Jan 09 10:12 PM

[EffHugh:]

Awesome Rich! That is exactly right! I am pissed that my own government has driven me into gold. I used to giggle at "those" people and wonder why in the heck they would ever buy it. That is until I watched as my substantial annual savings wasn't making a dent into the cost of owning a home in CA. Once you start down the rabbit hole of "how is this possible?" you can't unlearn things and so your perception of reality changes. The Matrix is a perfect metaphor for how I feel with regards to watching the world around me and how nearly everyone is clueless about how money is created and how their own government is robbing them blind even more than they already know.

Anyway, I don't own a tinfoil hat but definitely view the world and our country more and more with open eyes. I look forward to being proud to be an American again, if only we could elect a leader capable of getting us there. If only I could make a deal to be put back into the Matrix and forget about all this I'd consider it just like Cipher :-)

2008 Jan 09 11:32 PM

[Jake2:]

Areyou the Richard Shinnick who played linebacker at UCLA in the 60s 70s or thereabouts? He was a hard nosed guy. No gold in his teeth however. Big problem with gold is when it comes down. Splat!

2008 Jan 13 02:58 AM

[Richard Shi...:]

Duke,
No, that was my Uncle, Don Shinnick, he also played with the Colts for many years during their heyday and still (last I checked) has the NFL record for most interceptions by a linebacker. He passed away a couple of years back. A very sweet and much loved man.

2008 Jan 14 01:44 AM