24K Nation

Are Americans Crazy to Think Gold is the Safest Investment? 

"For the second straight year, an annual Gallup poll has found that a plurality of Americans believe gold is the single safest long term investment option. Safer than savings accounts. Safer than real estate. Safer than stocks. A full 28 percent of adults ranked gold as their top choice, down from 34 percent last year, a drop just outside the five point margin of error. It was most popular among older Americans, those without a college a degree, and individuals who earned between $30,000 and $75,000 a year"

Okay I, a gold bull, am done wincing now after considering the obvious contrary indicator implications.

"Maybe Glenn Beck really did convince a vast swath of the country to stock up on bullion to prepare for the dollar's impending collapse."

Was he pitching gold in 2000?  Whose fault is it if someone sat on their butt watching Beck last summer and got influenced to make a bone headed decision?  Hmmm?  Whose?  Glenn's just trying to eek out a living as a boob toob star.

"So fine. Gold's price rises and falls. But why? Gold's fervent devotees like to think of it as a hedge against inflation. They believe that when the government starts the printing presses, and the dollar starts losing value, investors will fly to what's tried and true. And indeed, when the greenback depreciates, gold's dollar value does rise. But so does the price of any commodity traded on an international market. Buying wheat or copper would have the same effect."

Yes but there is the nagging issue of the lag period between when they start running the presses to try to keep a contracting economy afloat and the time it takes for wheat and copper to recover.  In that lag period, gold has already exploded higher in relation to commodities.  Why do you think I put so much trouble into following the real (commodity adjusted) price of gold spanky?  And the RPG itself has been in an uptrend since 2008.  Chronic economic contraction took hold.

"Others consider gold a safe haven asset, meaning that when the markets are in turmoil, gold is the option of last resort. The problem with this approach is that the dollar is also considered a safe haven asset. That's why, even as our markets seemed to be collapsing during the financial crisis, its worth jumped. So problems in the world economy, or even the U.S. economy, can also bring down the price of bullion."

Yup, sure can.  Especially when gold is played by a world full of casino patrons.  First they drove it up too hard last summer and now it suffers a hangover from the mass exodus of the momo's.  The play has always been that when gold rises vs. other assets an indication is given for oncoming strength in Uncle Buck as well.  So?  They both represent liquidity.

"Around the time gold was peaking last year, New York Times columnist Paul Krugman offered up another interpretation of its price swings. Although he'd probably bristle at this, his theory is another variation on the safe haven school of thought. Here's the one-sentence version: When nothing else is going to pay much, people buy gold. Gold is only valuable to investors when a) they believe its going to rise and b) when the return offered by other investments will be lower. When interest rates are high, the appeal of gold is relatively low. When interest rates drop, and assets like treasury bonds pay less, gold turns into a better option. Over the past decade, real interest rates -- the federal funds rate minus inflation -- have been fairly low. Today, yields on 10-year Treasuries are actually negative. All this means investors don't have much to lose, and possibly a lot to gain, by piling into gold -- especially if they think other speculators will stampede towards it because of inflation fears."

People who bought value in 2000, 2001, 2002, 2003... have seen Au rise and fall many times.  Why are you promoting casino mentality?  Gold does nothing other than reflect the state of things around it.  And while we're at it, why no mention of the relationships between treasury yield maturities?  This is where the case for or against gold is found, i.e. rising or declining curves.

"There's another factor that we Americans tend to forget about: Worldwide demand. Gold, after all, is actually used to make things, namely jewelry and electronics. According to the World Gold Council, an industry trade association, more than half of in the past five years has been for jewelry. About two-thirds of that market is in East Asia, India, and the Middle East. In the last couple of years, demand has boomed in India and China, which both also have growing investor classes. That growth is captured in the chart below."

You forgot the old 'Indian Wedding Season' chestnut.

"So are all those gold bugs right are wrong? Again, it's hard to say. Interest rates. Global growth. The performance of other assets. The expectations of frighty investors. All of these factors play into the price of gold, and they're hard to predict. If you believe U.S. interest rates are going to stay low as the economy stumbles along, and that Asia's markets are going to keep growing, the shiny stuff might not be a bad long term investment. On the other hand, if you believe that the U.S. economy will heal in the next couple years, causing interest rates to rise, then perhaps your money is better off elsewhere. So the question really is: will we be better off in four years than we are today?"

They are right and wrong.  They carry a righteous indignation right into battle with an unyielding determination.  They are wrong when they become blinded by what they know and get slaughtered for it.  They have global monetary fundamentals on their side but as a group are ill-suited to win this war because the 'community' is also populated by pitch men (and women), linear thinkers, trend followers who sound like they know what they are talking about.  Many of the most respected gold advocates are intelligent, well schooled and right-minded, but believers of everything they hear are flat out getting set up to fail.

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