bearfund

Response to Bloomberg's 'Gold May Pay Only in Case of Maximum Despair'

I don't really find her commentary that objectionable, other than the "gold is for rich guys" snark. What too many gold bugs forget is that gold is not an investment. It's simply a store of value; its purchasing power in real goods and services changes little or not at all over the long haul. Therefore it is where you put money you cannot afford to lose, or for which you cannot find an investment where the rewards outweigh the risks. Right now the risks of holding paper currency (dramatic printing, losses in money market funds, default by longstanding solid companies) outweigh the rewards (1-2% yields). The risks of stocks, bonds, commodities, and exotics exceed their respective potential rewards as well.

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.