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Bankers, Economists Say Gold Is a Bubble: Here's Why You Should Ignore Them

Mr. Kim has dissected Nouriel Roubini's pale effort at a reasoned critique of gold investment with the skill of one who is well practiced in the art of employing Occam's Razor. Kudos to Mr. Kim for an exceptional analysis, without resort to graphs.

I have been struck by the highly selective and misleading data mining employed by the politicians, economists and their fellow travelers who denigrate those who invest in gold. Bubble indeed. Have they applied their same flawed reasoning to the bubble in fiat currencies now inflating? No, that would be too painful. It is interesting that the first comment to this article by Mr. Kim, was contributed by someone with the identity of "jrainspe" who dashed off a one liner of questionable utility, i.e., "BS." Perhaps a bit of projection, I assume.

Sold Gold

Very short-term advice from the writer. Traders are welcome to participate in that strategy, but I prefer to take the longer view. Once you trade out of a position, the hardest part comes next, when do you get back in? Most market moves of any significance happen very quickly.

No Silver Lining for Precious Metal Bugs

The rant of a "dollar bug." Richard Russell has coined this new phrase as a counter to the derogatory term, "gold bug," employed by those who want the illusion of a strong dollar to serve as an opiate to what they consider to be the rubes of this world. The label "dollar bug" fits Mr. Dividend to a "T." Which by the way, is the metric (read trillions of dollars) by which the U.S. Treasury, the Fed and the FDIC are employing to "defend" the U.S. economy from a major recession. These governmental entities are currently involved in the fire hose spraying of taxpayer dollars and credits lavished on such great investments as AIG, Fanny Mae, Freddy Mac, Citi, and others. Mr. Dividend enjoy the fool's paradise that you have so inartfully described.

Headwinds for Gold?

Ah yes, your thesis is absolutely correct, that gold prices are in large part dependent on the world fiat currency picture i.e., that if all currencies are strengthened by governmental policies (raising short term rates, reducing money supply), and weakened by the opposite. However, to what extent do you believe that the central banks of this world will use that lever in the face of a declining employment picture? The numbers released in the job report on Friday understate the case, see John Mauldin's piece dated June 6, 2008, entitled, "When Bubbles Collide."

The 'Death of Gold' Revisited

The major flaw in the reasoning of this writer is to largely ignore the role of the vast dollar decline, not just against other currencies, but against the things that people around the globe use every day. This list includes, not necessarily in order of importance, oil, food, metals, building materials and all sorts of tangible goods, that people require for their standard of living. As the peoples of the undeveloped but rapidly developing world seek a better life, these things will command a premium. To the contrary, financial assets like shares of Citigroup, Countrywide Financial, the whole array of derivative investment paper, is not as appetizing to consume. This whole trend is absent from the writer's analysis. I agree that gold and other precious metals are in a temporary decline, but if you examine the charts from the mid 1970's until the present, you can readily see that the dollar index has convincingly broken through the 80 level to the downside, and the better view is that this is not a temporary phenomenon, as much as general consensus would have you believe otherwise. For those who are interested in learning more about the role of secular bull markets in commodities, one could profit handsomely from a thorough reading of Jm Rogers' "Hot Commodities," which though an unfortunate choice of words for a title, has demonsrated over the past two years, Rogers' prescience.

Gold's New All-Time High

And if "investing in commodities is a loser's game" then I suppose an investor ought to load up on stock in such current "stalwarts" as Bear Stearns, Citigroup, Countrywide Financial ("Country Fried"), Washington Mutual, etc. and ride the financial bull market?