Cash Out Of Gold And Send Kids To College?

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Cash Out Of Gold And Send Kids To College?

Today's AM fix was USD 1,608.50, EUR 1,310.92, and GBP 1,030.69 per ounce.

Yesterday’s AM fix was USD 1,612.75, EUR 1,307.46 and GBP 1,029.79 per ounce.

Gold climbed $4.90 or 0.03% in New York yesterday and closed at $1,617.70/oz. Silver fell to $27.86 then rallied and finished with a gain of 0.39%.

Gold appears to in lock down mode this week with prices trapped in an unusually narrow 1% or $15 range between $1,603/oz and $1,618/oz.

Gold Spot $/oz Daily,20 days & 20 minutes - (Bloomberg)

Support is at $1,585/oz to $1,590/oz and at $1,570/oz. Resistance is at last week’s high of $1,628/oz.

Technically, the narrowing wedge pattern suggests that a close below or above these levels could lead to rapid and sharp moves down or up.

Gold was initially flat in Asia but took a dip and has remained weak in European trading.

XAU/GBP Exchange Rate Daily  - (Bloomberg)

Gold is on track for its 2nd weekly gain – possibly due to concerns about the Chinese, US and global economy. Slowdowns in all major economies mean that it’s not really a question of if the central banks will employ fiscal stimulus packages, only when.

An indication of continuing demand, especially institutional, for gold was seen in the data from ETF Securities' which showed gold ETF holdings up a very large 216,000 ounces or 6.7 tons on Thursday.

Cash Out Of Gold And Send Kids To College?

The Financial Times published an interesting article on Wednesday by a Tokyo-based analyst with Arcus Research, Peter Tasker, entitled of 'Cash out of gold and send kids to college'.

The article is interesting as it is an articulate synopsis of those who are either negative on and or bearish on gold. It clearly shows the continuing failure to understand the importance of gold as a diversification and as financial insurance.

Tasker incorrectly states that gold is "just another financial asset, as vulnerable to the shifts of investor sentiment as an emerging market."

He conveniently ignores over 2,000 years of history showing how gold is a store of value. He also ignores recent academic research showing gold to be a hedging instrument and a safe haven asset.

Another fact unacknowledged is how gold has clearly been a store of value since the current financial and economic crisis began in 2007. Since then gold has protected people from depreciating financial assets (such as equities and noncore bonds) and from depreciating fiat currencies such as the dollar, the pound and more recently the euro. 

Further evidence that gold is not just "another financial asset" is seen in the fact that some of the largest buyers of gold bullion bars today are central banks.

They are buying physical gold bullion in order to diversify their foreign exchange holdings and to own a physical hard asset that will protect in the event of currency crises or an international monetary crisis.

That gold remains a store of value is also seen in the fact that the other most important buyers of gold in the world are store of wealth buyers in Asia and the Middle East (particularly China and India but also in Turkey, Iran, Indonesia, Thailand, Malaysia, Vietnam etc).

Millions of these buyers do not view gold as a risky "financial asset." They know through experience that gold is a store of wealth and are buying near pure gold jewellery and bullion coins and bars in order to protect against currency debasement.  

Were Peter to have a conversation with a few Spanish, Irish or Greek investors he would quickly realize why gold is not just another “risk on” asset.

Japanese, British and American investors would be wise to diversify into assets that have protected periphery European investors in recent months.

He also suggests that gold is a bubble as "the price has simply become too rich".

He makes a comparison with the "great historical bubbles", such as "Japanese stocks in the 1980s" and the "Nasdaq in the 1990s".  This comparison is simplistic and misleading as the percentage price gains in both the Nikkei and Nasdaq bubbles was orders of magnitude greater than gold's gradual rise since in 2000.

Indeed if one looks at gold's performance in an all important long term perspective (see video showing ‘Gold Undervalued From Long Term Perspective’ <3 mins, 20 seconds>), one sees that gold's gains in recent years are very sustainable and gold is merely playing catch up after the massive under performance and bear market of the 1980's and 1990's.

The Financial Times is fairly good in covering the gold market and allowing a plurality of opinion regarding gold. Every so often simplistic, unbalanced articles about gold are published.

XAU/EUR Exchange Rate Daily - (Bloomberg)

Such articles by 'experts' have the effect of confusing and misleading other journalists and the wider public and contribute to weak hands selling their gold holdings. This was seen again in recent days.

What is interesting is that such articles are often a contrarian indicator. They often come at a time of heightened negative sentiment against gold and can often mark an intermediate low in the gold price.

These articles are also a good contrarian indicator as they show that there remains a fundamental lack of knowledge about and appreciation of gold and its importance as a diversification for portfolios.

Incidentally, in the volatile year that has been 2011, gold has still outperformed many assets and seen its wealth preservation attributes shine again.

Gold has risen by 8.7% in euro terms, by 3.1% in US dollar terms and by 2.3% in sterling terms so far in 2011.

Never let the facts get in the way of a good gold bashing article.

Tasker accepts that US equities, despite being in a 12 year bull market, are still not cheap and yet he does not advise people to cash out of US equities.

Not acknowledged is the fact that only a tiny minority of investors have any allocation to gold whatsoever and therefore are not in a position to “cash out of gold” even if they were imprudent to do so.

Finally, investors and savers who have an allocation to gold will, in the coming years, be the people who can as Tasker concludes "buy a nice house, hire some workers, send your kids to college and eat big breakfasts".

That is gold's value – it is a proven store of wealth that protects people's living standards from government profligacy and financial asset and currency depreciation.

'Cash out of gold and send kids to college' can be read here.

Our video about gold as a store of value versus cash which debunks Tasker’s article can be watched here.

Cross Currency Table – (Bloomberg)

 

NEWSWIRE

(Bloomberg) -- China Cracks Down on Extortion of Gold Exchange Members: Xinhua

Chinese police caught 10 people on suspicion of hacking computer systems and extorting 14 member companies of Hong Kong’s

Chinese Gold and Silver Exchange Society early this year, Xinhua News Agency reported yesterday, citing police in Hunan province.

?Six of the people were detained, Xinhua said

?The people are suspected of trying to extort 100,000-300,000 yuan from the member companies for allowing the companies’  websites to continue operating, according to Xinhua

For breaking news and commentary on financial markets and gold, follow us on Twitter.

NEWS

Gold Bulls Strengthen on Outlook for Additional Stimulus - Bloomberg

Gold ticks down, investors still eye China stimulus – Reuters

Gold Little Changed Amid Firm Dollar – RTT News

Gold, corn and oil among top assets in crisis - FT

COMMENTARY

Gold rush in China could see it sweep past India - Mineweb

ANALYSIS - Waiting for QE3: gold's last hurrah? - Reuters

What Happens to Greece’s Gold when They Exit the Eurozone - GoldSeek