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The sad part is that a lot of people actually believe this nonsense. It's just another demonstration of the fact that some people are not as smart as the rest of us.
Precious Metals--no one's liability. No counter-party risk.
Ok, this gold bug gives up, you win! But did you know that rubbing gold coins on your privates increases desire?
Two changes; First keep the cat, second pimp off the mother in law (more satisfying & potentially more profitable). Seriously, silver & platinum are far superior to gold. Silver is a very useful industrial metal & cheap now since chemical based photography is dying. Platinum is a madman. More & more uses invented almost monthly & in short supply. Even so very difficult as you said for gold. If your purpose is an ultimate hedge consider the state of industry in a total Armageddon. If mere hyperinflation is your scenario those metals could be much better. Choose your poison.
This guy is a moron. He obviously doesn't get it. FIAT currencies are on the way out. When China is telling it's citizens to buy gold and silver, you buy GOLD. When China and India DON'T WANT TO EXCAHNGE YOUR dollars FOR THEIR CURRENCY UNLESS YOU PAY A 35% FINANCE CHARGE, you buy GOLD. When you are paid in dollars and you want to protect yourself from a reckless federal reserve gone mad printing dollars like crazy, you buy GOLD.
The Rip Van Winkle Caper
As the man gets back into his car to report Farwell's death to the police, he quizzically remarks to his wife, "Can you imagine that? He offered this to me as if it was really worth something." The wife vaguely recalls that it had, indeed been valuable sometime in the distant past. The husband replies, "Sure, about a.... hundred years or so ago, before they found a way of manufacturing it," and tosses the gold bar away.
The last of four Rip Van Winkles who all died precisely the way they lived, chasing an idol across the sand to wind up bleached dry in the hot sun as so much desert flotsam, worthless as the gold bullion they built a shrine to. Tonight's lesson...in the Twilight Zone.
Think about Asia. Africa. Turkey. The Middle East.
Now, are these people going to be as infatuated with paper money as North Americans and Europeans? Unlikely.
China and India know that only gold is indicative of true wealth. All the US dollars and government debt is still not as alluring as the idea of owning large amounts of gold.
Gold doesn't give you returns directly. It gives you power. Allows you to have influence.
If you want to run a 21st century gang, you should probably pay your gangsters in gold, or in narcotics.
Interestingly, it looks like the military/industrial complex long ago decided that the narcotics industry would be a great cash cow.
Now they just have to get China's middle class hooked = Opium Wars 2.0!!!!!!
When everyone realizes that we are staring down the barrel of massive interest rate hikes based on our gov't printing endless amounts of $ and the only real way to stop the fall of our soon to be worthelss dollar is to raise rates then the "flight to quality" trade will ensue in the metals markets. Why would any foreign investor own a govt bond when our govt bails out corp. america with the $ that people buy our bonds with when they could cut out the middle man (us govt) going forward and just buy corp. bonds and pick up 100's of basis points in return. Soft commodities will take off one day as well as they are not only a tangible asset but a necessity as well.
just make lots of daughters - they are always worth something
I'm not a gold bug, but your argument actually makes me think I should add gold to my portfolio.
What other true hedge is there against every major currency in the world "creating" money 24/7? Other commodities are dependant on demand much more than gold.
It's hard to buy something that has already had its day in the sun (not to say it couldn't go higher still).
debtor revolt video on marketticker must watch http://market-ticker.denninger.net/
"inflation is a very addictive tool to fight growing monetary obligations".
sure is. nothing much beats o'd-ing on credit. whatcha going to do it?
the kicker to all this is simple demographics boat-scuttling - which is why they're unscrewing the hangar.
P1 “For investors (not speculators) it is very hard to own gold, because you cannot attach a logical value to it”.
Can one attach logical value to a portfolio mgr talking bollocks?
P2 “It is a bit like a roach motel – easy to get in, hard to get out”.
Some truth in this. GLD & SLV were designed by serial career traitor Akerlof whose wife is a senior FED official. how conveniently coincidental.
P3 “In the past, gold had a monopoly on the inflation and fear trade. Not anymore. Now you have competition from Treasury Inflation-Protected Securities (TIPS), currency ETFs, short US Treasury ETFs, government guaranteed/insured FDIC checking accounts, etc”.
TIPS are unbacked IOU debt instrument made of paper for convenience like FRNs with COUNTERPARY RISK, all currencies are sinking together against gold no exceptions,,, none,,, the more guvs bail bankrupts the more diluted the currency, the higher the nominal price of gold. FED has managed sentiment well to date, running out of credibility at a faster pace. Awareness of guv Ponzi con tricks, schemes, lies, plots now entering mainstreams
P4. “If, because of points 2 or 3 above, gold fails to perform as expected, the perception of what gold is worth may change dramatically”.
Gold doesn’t perform, it never has. Gold doesn’t move. Paper dilution raises it nominal price & vice versa. Gold’s real price as defined by gold divided by commodities increases in the post-bubble crash scenario by way of natural compensation for the gross mismanagement of & corruption in financial matters. wherein even if the price of gold stays at $1000 for the next 3 years mine profits will rise as commodity prices fall - again, real price of gold, a point you conveniently failed to address.
P5. “Over the last 200 years, gold was really not a good investment. It may have a day in the sun, but it may not. And the cost of being wrong is fairly high”.
Gold is not supposed to be an investment, it’s a medium to store wealth when corrupt governments start unscrewing the hangar & sell their country out. The growth of portfolio managers has a linear correlation to fiat printings. Portfolio managers die on the vine when fiat shrinks as you see. Firings of unnecessary, undesirable parasites in the hostile environment of their own making.
Yes, Chinese citizens are encouraged to buy PMs – unlike the advice you give your clients which will cost them dearly.
VK, as a CFA, are you trying to sell something to this audience?
Vitaliy - you are Russian, and yet that makes me even more perplexed about how you come to these absurd conclusions? Of all people making these posts, you should be even more aware of how Gold is money. Look at how people in Russia scrap the Ruble and hoard gold jewelry. I guess you are truly Americanized. Talk to you parents, maybe they can explain to you the importance of Gold.
I just want you to think for a moment, what if this guy ends up being right? He is being contrarian at the moment. Even though I don't agree with anything he says and I am long physical gold, physical silver (fuck you ETFs) and the miners, it is food for thought.
He may end up being right, but it won't necessarily be for the reasons he states. Precious metals have many complex factors underlying pricing. Different people see them different ways and so trade in different ways. At the end of the day I stick by one simple fact: physical gold and silver can't go bankrupt. There's a paper war going on out there right now and an awful lot of funny money going around. I want less risk so I like PMs.
A big factor to bear in mind is the natural price suppression of PMs that arises as a consequence of the PM carry trade. If that breaks then PMs are going to the damn moon, especially silver.
Ah yes, Buffett. I remember this quote of his, it came from 1998.
But here's the thing: in 1998 Buffett bought 130 million ounces of silver causing the price to double. His stash was 20% of annual silver production at the time and over the next few years it would rise to be 37%. Until 2006 Buffett routinely held more silver than the COMEX.
I prefer to judge a man by his actions rather than his words. Buffett's words inferred he didn't like PMs, his actions were the exact opposite. I call that a head-fake.
In 2006 Buffett sold out of his position (at exactly the same time SLV suddenly acquired 170 million ounces without the expected move in silver prices). He later went on to say:
“We had a lot of silver once, but we don’t have it now—and we didn’t make much on our prior holdings...I bought [silver] early and sold early. Silver was my fault. [Speculation] is wildest at the end.”
- Warren Buffett, 2006
the sooner the asshole kicks the bucket the better
USD Index daily chart is neutral.
Weekly chart remains bearish.
Monthly chart is BULLISH.
Just because gold has been a monetary instrument in the past, does not imply it will be in the future. any instrument becomes a store of monetary value only when economic participants put faith in it. Last I checked, the biggest economic player is the government ( and given current pace of nationalization, i can only see it's share going up from here on ). So unless your view is that the government will stop accepting it's own currency, and start putting faith back in gold, I don't see how gold can be a store of monetary value.
Look out a bit farther, the world is bigger then the US.
"So unless your view is that the government will stop accepting it's own currency, and start putting faith back in gold, I don't see how gold can be a store of monetary value."
Anon #63196: With all due respect: you, sir, are an idiot.
Barrick manipulation suit settled with terms sealed
China mandates delivery of bullion to new HK vault
Central Bank gold sales constrict
Jewelry demand slumps, worldwide investor demand ramps
Deutsche Bank uses ECB gold to settle on Comex?
JPM largest holder of GLD ETF?
GATA charges JPM, HSBC, DB of gold manipulation
Britain sells all their gold stores at very bottom
Correction - - Britain sold approximately half of their publicly stated gold stores at the bottom.
If Mark Twain said, "A mine is a hole in the ground with a liar standing above it", then Vitaliy might have said, "A gold ETF is a prommise with a CFA standing behind it."
As for the physical stuff, I have left my jungle hideout and am making my way to one of my bank SD boxes where coins and bars have been collecting dust since $285/oz (and which costs me nothing since the bank picks up the SD Box cost). Then I'm selling it (just one box for now). Yes, I'll miss what that man on TV says about "if gold goes to $5000 per ounce, this pile right here will be worth an astounding......"
And if shrimps could whistle.
I happen to believe that while gold has a special place in the human psyche, it has lost out a bit to practicality. I do not mean paper assets, but rather other commodities that are useful in the modern world such as copper, tin, antimony, molybdenum, cassiterite, rhenium, etc. China has realized this and has stocked up on things it can actually put to use. It hasn't given up on gold, it has merely succoumbed to practicality.
Warren Buffet forgot what his dad taught him, and he has paid for it dearly - to the tune of $25 billion last year. And no, if you are a "genius" as Buffet has been projected so far, last year's crash is no excuse. Anybody who was not branwashed and did not believe his own good press could see it coming. In fact, those who really knew what was happening (unlike Buffet) MADE MONEY. Remember John Paulson?
It says a lot about the rotten state of our education system when a CFA, of all people, does not know that Gold is money. Vitaliy, if you had kept your mouth shut about Gold we would have probably given you the benefit of doubt and kept on reading your articles, but now you have exposed yourself as a complete moron.
Warren sold his megastash of silver in 2006 (it is rumoured: straight into the SLV ETF. The more conspiratorial folk believe he didn't sell it at all, but leased it to the ETFs).
He sold at $7.50.
I wonder how he feels about that now?
(HK spot right now at $16.50)
Vitaliy, if those are your arguments, please prove the arguments in favour of gold wrong. I try my best to prove your arguments wrong.
It has no utility.
You can not argue with the tape. - Jesse Livermore
So , when I can sell for more then I bought I did something right. Whether that is a stock or gold matters only for the risk.
For CFA’s it might be hard to own gold, why for investors? Currently the S&P 500 trades around 130 times earnings. A fair value is around 14, so the stocks are overvalued. If you take projected earnings, the number goes to around 20, but that does not change the fact that stocks are overvalued. Future earnings are by definition as unknown as the real value of gold. Some stocks are actually in worse shape then a P/E or similar measure shows. Take Reggie Middletons analysis of JPM for an example.
In short, JPM runs an insane risk.
This analyzed stock does not look promising either.
In a bear market for stocks it is hard to sell a big holding. This argument applies to stocks and gold alike. Tyler posted a while ago that a company was obliged to issue stock to pay interest and did not issue stock in clear breach of contract. There were no buyers either. In contrast, the Chinese would like to exchange their green paper for other assets and are kept back by fear of rising the price of gold too much. The commercial shorts might be willing buyers of gold.
In most of the past gold was money. In bad times gold bought less stuff then in good times, overall the value was relatively constant. In contrast, since 1971 gold is not used as medium of exchange anymore. Considering both periods together does not make sense and after having that pointed out keeping the argument borders to intellectual dishonesty. Since 1971 gold is up some 28 times in dollars. Why do you ignore this fact?
Applies to other investments as well, in case of gold the perception has increased the value some four times since the last big bottom, nicknamed the Brown bottom according to the genius British finance minister who sold exactly at the bottom.
The cost of being wrong in any investment can be high; ask owners of pets.com (recommended by Wall Street analysts) for details. What companies will have pricing power during inflation when real wages do not go up? Oil comes to mind, but then you need to make up your mind whether peak oil is real and if so, when it happens or has happened. That discussion is way out of scope of this reply. Depending on where the company operates, there is geopolitical risk involved too. Should the FED be powerless and we run into deflation, this group of stocks will not do well; there is no pricing power. In a worst-case scenario stocks and government debt might become worthless; there are a variety of scenarios with different investment implications but stocks and bonds are NOT the alternative. Not enough gold? That is a matter of valuation; moreover, there could be currencies for domestic use and gold for international transactions. No government will willingly give up the keys to the printing press – agreed. Will after another bad experience of inflation or default any lender show up? You are saying that governments are stronger then market forces. I go with the market. Beside traditional buyers in India and Turkey there are two more wildcards: Russia and the Arabs. Putin stopped leasing of the central bank’s gold and the Arabs are traditionally in favour of gold.
Vitaliy, I challenge you to provide three to vive investments of your choice and I will provide a precious-metal-related investment with timing calls. Let us see who ends up better in a year.
IMHO, China is talking up the price of gold, in retaliation for Ben's QE policy devaluing their dollar holdings.
They have already publicly disclosed they've been stocking their reserves with gold for several years now, and recently have disclosed they are urging their citizens to buy gold and silver.
Ben has said that in the 70s stagflation "we let the price of gold get out of control".
Since then, its price has been suppressed by Western CBs.
China is making that suppression harder, but talking up the gold price. Money flowing into gold is flowing out of treasuries, driving yields higher, making QE even more catastrophic for the costs of servicing our debt.
We think we won the Cold War......but not all the players have stopped fighting yet.
Haha, I read Cold War as Gold War.
OMG! I get it now! Gold is dumb and US dollars are awesome! That is, like, exactly what CNBC keeps telling me! You are sooooooooooooo smart! Gold is now, like, totally uncool thanks to you! I'm giving all my gold to Goodwill since it so totally useless! Thanks for setting me straight!!
"The best way to deal with the risks of dollar devaluation and high inflation – with a much lower cost to being wrong – is, instead, to own stocks of companies that have pricing power of their product."
The experience of the last major inflationary episode in America, the '70's, taught me for one that the "best way to deal with the risks of dollar devaluation and high inflation" is to buy gold (and silver). Detroit could teach us a lot about what starts to happen to pricing power when the unemployment rate gets into double digits!
Your analysis is Garbage in Garbage out. I'd hate to be a bagholder client of your's.
I actually enjoy this series. I own gold, but so long as people think the same way as Vitaly - rightly or wrongly - it affects me. #4 (which start with an "if") is correct.
The day there is a genuine reason to part with gold, it will not be promoted by a gold bug.
AU IS FULL EVIDENCE ENOUGH
If #2 were correct, then why has there been a 3 week to 2 month wait in areas all across the US? I am not a gold bug, but unless you are in a major metro area (and sometimes not even then) you can't buy the bullion. It is on an order it today and wait for it to arrive.
Vitaliy, seriously dude, you may want to take this post down like super fast. It is time to stop digging that extremely large hole you are in.
TD, WTF?? How much longer are we going to have to endure this? Is this a joke?
What about all those Enrons, Lehmans, Citigroups, etc. that either went bankrupt or got near it? What was the value of those?” If the lesson learned is not to own stocks but to own gold, it is the wrong lesson. The lesson should be: own companies you can analyze. . .
To quote John Bogle (founder of the Vanguard Mutual Funds) in his latest book "Enough,"
"Loose accounting standards have made it possible to create, out of thin air, what passes for earnings . . . [b]ut the breakdown in our accounting standards goes far beyond that: cavalierly classifying large items as immaterial, hyping the assumed future returns of pension plans, counting as sales those made to customers who borrowed the money from the seller to make the purchases, making special deals to force extra sales at quarter's end, and so on. . .What we loosely describe as creative accounting is only a small step removed from dishonest accounting." (p. 108-9)
Where are these companies the lay man, or even the best financial gurus on the planet for that matter, can accurately analyze? I for one apply Occam's razor to investing as well.
The financial sector has risen to occupy 40% or more of the economy. Nearly all could be replaced by one computer and an attendant. They need to be irrevocably cut off.
That they have no other skill upon which to fall, makes them fearful and feel the emptiness of their future. That desperation makes them pen tripe, fearmongering, and means by which they can channel the extra resource of mankind into their value traps.
We are moving into a epoch where investments (such as we have known) are no more. People of means will allocate their money stores only to that enterprise which they can oversee; no longer will they send retirements into the custody of unknowns to back unknowns for unknown returns.
Ponzification of the globe has awakened all to the danger of asset "managers". Their is no loyalty in the money world anymore. Their services are no longer required.
"Over the last 200 years, gold was really not a good investment. It may have a day in the sun, but it may not."
200 years? You look too young to have clients with that kind of time horizon. Name me a stock besides GE still in the DOW since 1930?
How about 17 years as a long term? You have to go back before February of 1992 to find a date when you would have been better off buying and holding the MSCI EM index over buying and holding gold. What grade were you in then?
Zero Hedge has gone pay to play with self promoters authoring lightweight articles linked to books they are selling and money management outfits they direct you to. The commenters know multiples of this author.
Exactly. Build a time machine, jump back 200 years, make an investment in gold and an equal one in any form of paper, jump forward 200 years, check out how those investments performed. 99.9% probability the paper is worth nothing. 0.1% probability the gold is worth nothing. When paper is collapsing, precious metals are a good place to be.
This is the third installment of rubbish. If you were my money manager after reading this, I would fire you. Moreover, if this is how a typical CFA is educated, or indoctrinated, then you're schilling for others to entice novice investors into their products. Furthermore, you have the gall to write a book with your non credentials. Shame on you sir. Go away lest you attract a following of folks with pitchforks.
GLD is a weak picket line in a weakly defended front facing the assault of a highly trained, motivated, and uncontainably angry foe.
What little resistance it offers will be consumed like a light frost in July.
All markets face repudiation, their movements today are the empty random jerks and stutters of meaninglessness. No real money there anymore. They only "present" in order to lure the hapless to certain value extinguishment.
The yeomen of the world, the steward of small cobbled sums around the world despise the carnival, the games, the paper pledges full of promises unintended.
They demand GOLD. They demand discipline of the government and banks such as are demanded of them in delivering the goods and polished services to the world.
They are content to make small cares for themselves as the "paper people" of the markets starve out in their gold encirclement. This seige will surely starve out the unproductive counterfeits in commerce.
The true productive class will then take the field.
Too much college.
one thing we do agree with Vitaly on:
it may be worth it for one to be skeptical when one constantly sees ads for gold on the back page of the metro paper EVERY SINGLE DAY...
sorry bugs but those ads reek of PT Barnum.
Several of your contra-arguments are flawed. In particular, if you would simply do the work, you can indeed compute a quantitative value for gold, in terms of USD, depending on what assumptions you would like to make. Perception is important, particularly at any specific point in time. That's what makes a market, in stocks, gold and anything else that's traded. Gold, stocks, bonds, real estate, fiat currencies. All can be good investments at various times. One merely needs to be correct!
The argument that gold is not money (I assume this is what you mean by currency) is also incorrect. Gold meets the benchmark requirements for money. Again, you need to do some research before jumping to conclusions. Additionally, if you study some monetary history you will see that it's not a particular fraction of gold that matters, nor usually the physical possession of it. it's the fact you can't print gold, it's relatively rare, the supply grows slowly, and the faith that this fraction will exhibit any stability over time. 1 oz or 1/1000th of an ounce doesn't matter. But if people don't believe that fraction is stable, they'll rather own the metal itself than any paper claim on it. History tells a tale. There is nothing new under the sun.
Finally, these arguments that gold is dangerous because this or that entity might sell a bunch is not particularly unique to gold. If you buy a stock just before top shareholders liquidate suddenly, is there some special protection you'll get from mark-to-market losses? it's a risk.
Gold may be a great investment, or it may suck. Just like lots of other choices.
Lets not shoot the message. His law of marginal utility he awakes with in the morning is his own. Up, down or whatever is it the harbinger of inflation there and our deflation black angel. Metal for thousands of years posits it own value not a opinion I feel. Answer me this tho author: If gold metal was a commodity, what is it doing on the balance sheets of a central governments as we read since athens? It can remove uneasiness since it has been the safety valve for countless centurys. Denizens here predict $1200. I have no clue how high or low in the next dacade but will get some later for utility purposes only then. Current gold bubble coming, why not every thing being hard to price. Government could answer if they wake up from drunken ways but I do not see that going to happen with these debt locust's in power. Prudent people will buy some over time as always.
"US government will not let FDIC go bankrupt, even if it means it has to raise taxes and impose draconian fees on the banking sector." Where tapped out uncle Sam next question. The hum of the press persists......
I would love to own companies I could analyse , but not being an expert in decripting cooked books I feel challenged . No gold bug but geeze a piece of paper with some scibbles and a $ sign , in God we Trust , makes an argument for somethink at least shinny and pretty .
Is this post meant to be satire?
Has to be.
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