4/11/2012 4:39 PM ET|
Why the gold rush is over
Evidence mounts that investors should end their love affair with the yellow metal, because gold bugs are about to get squashed
It's hard to imagine the public's view on precious metals back in the early 2000s, back when companies like Sun Microsystems, and InfoSpace (INSP) still dominated investor attention, oil traded at $30 a barrel and gold as an investment not only wasn't followed, but was practically unknown.
Over the course of the following decade, the entire asset class transformed. Gold (and gold stocks) soared, turning a onetime investment backwater into the market's most sought-after asset. Gold has now been up for 11 years in a row.
With those strong returns came a proliferation of gold-following funds. Back in 2001, Central Fund of Canada (CEF) was about the only pure-play exchanged-traded means for stock investors to allocate to the yellow metal. Since then, innumerable new products have been launched, including funds like ETFS Physical Asian Gold Shares Trust (AGOL), which holds physical bars in Singapore, and Power Shares DB Gold Double Long ETN (DGP) which offers a double-leveraged bet.
What also changed was the public's level of comfort, not to mention portfolio allocation, with commodities and other alternatives. The same investors who in 1999 questioned owning anything besides Cisco (CSCO) and Microsoft (MSFT) were, by 2010, allocating as much as 25% of their portfolios to gold. (Microsoft is the publisher of MSN Money.)
The changing political landscape: more regulations, taxes, spending and demands for sacrifice (not to mention a weaker dollar) have also given people more of a fundamental reason to hold.
Physical gold satifies an emotional need as much as a financial one, a nuance tapped by companies selling bullion who romanticize gold as "something you can hold in your hand."
As we've pointed out over the years, gold's benefit as a portfolio diversification has ebbed. Recently, gold has tended to rise and fall along with stocks, acting like a risk asset itself rather than a hedge against them.
As investors, we can't afford to play favorites or fall in love with any asset. Facts are facts, and the reality of how market prices act always trumps how we think they should or hope they might act. Nothing is sacred.
And in the past few days, even the metal's most ardent fans have noticed that gold stocks are showing considerable weakness, with a slew of influential and widely owned names nipping new yearly lows.
Take Barrick Gold (ABX), Eldorado Gold (EGO), Gold Fields (GFI), AngloGold Ashanti (AU) and Newmont Mining (NEM), which are all at early to mid-2010 levels. Iamgold (IAG) trades where it did back in the summer of 2009.
As represented by the Market Vectors Gold Miners (GDX) ETF, gold stocks appear to be among the market's weakest, with the fund trading far below its 200-day moving average, even in a strong first quarter for risk. More telling is that smaller, more speculative gold stocks are doing even worse. The Market Vector Junior Gold Miners (GDXJ) ETF, which follows them, is down by nearly 50% in just the past year.
Trading is, first and foremost, observation. If you look for gold stocks doing well right now, you'll discover that they're nearly impossible to find. Of course, companies are also influenced by management and labor issues, and not just by the metal itself.
The longer-term correlation is self-evident, however. For most of the past three years, gold stocks led the metal higher, a relationship that began to deteriorate last fall as stocks slipped.
Now gold stocks are at yearly lows, and even longtime fans of the metal should heed the objectively worrisome signs.
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Go to usdebtclock . org
$118 TRILLION in unfunded liabilities: $1,045,667 per taxpayer.
$15.6 TRILLION in Federal national debt: $138,163 per taxpayer.
Anyone here got $1,183,830?
So a few simple questions:
1) Can interest rates be kept low forever?
2) When interest rates go up, what happens to the amount of interest on the principal?
3) When money is printed to pay the interest on debt, is this inflationary or not?
4) Does inflation drive the price of gold up or down?
There's a fundamental misunderstanding in most of the comments. Gold never changes. It was an ounce of gold yesterday and thousand years ago; it will be an ounce of gold tomorrow and a thousand years in the future. It is a metal in the periodic table. It is a constant. You can't increase its value. You can't decrease its value. It is what it is.
What fluctuates is the PRICE of gold as expressed in whatever paper currency you choose. Thus, gold's price is really an expression of the current level of confidence in paper money in relation to gold.
Now, the question is, given all the facts that you already know about our fiscal debt, our entitlement obligations, state debts, pension debts, and the maniacal manipulations of the Fed, how much confidence do you have in the dollar, longer term? [pause] OK, and given that unease and uncertainty, doesn't it make sense to have something that is a constant, so that when this whole societal convulsion blows over (eventually, it will) you'll have something of value that will convert to liquid assets readily?
So in other words, sell at the bottom and wait for gold to go back up and prove its worthiness as an investment before you establish any new positions ??????????????????????????????
Let me guess what's behind this article. Goldman Sachs wants to go long gold today.
Gold bugs will never get squashed.The price in fiat worthless dollars means absolutely nothing,nada,zero,zilch.In 1933,you could buy a nice suit with an ounce of gold.Today,you can still buy a nice suit with an ounce of gold.Even allowing for inflation,the same can not be said for the dollar.THAT IS MAINTAINING PURCHASING POWER. PM's are not stocks to be bought low and sold high,they are money that you hold onto.
1970-If you put $10,000 into the stock market,today it would be worth $140,000.Pretty good,right?
1970-If you put $10,000 into gold,today you would have over $450,000!And that includes the 1980-2001 bullmarket AND the ongoing price manipulation by JPMorgan and HSBC.
So, not only does the metal investor realize 200% more return,but that $140,000 has lost a significant amount of purchasing power(barely buys a decent house these days),while the inflationary effect on the metal dollars is mitigated by the amount.
The citizen/investor who puts all of their faith in permanent 0% interest rates and money printing forever will be stuck with dollars devoid of purchasing power.Gold(and silver), as it has for 5,000 years, will always have tangible value even as the dollar withers away.
If not for endless liquidity,bond purchases and TRILLIONS IN MONETIZED DEBT,where would our economy really be?WE HAVE NO ECONOMY-ONLY THE FED's euphoric drug called free money creating TRILLIONS more in debt that the sheeple will be forced to pay back in their precious fiat.
2008 was the beginning of the end for Petro Dollar,and to even think that a crisis was avoided is insane.But,please,stay in paper because I haven't accumulated enough metals yet and need the price to contract even more.Only 1% of you out there even understand how important gold and silver WILL BE to your future in the coming years.Oh well.
I'll stick with actual hard assets,thank you very much.The majority of you can keep your paper and the delusion that the DOW JONES IND AVERAGE is actually a barometer to our nation's economic health.It is not.
The flaw in this article is the implication that gold is an investment. It is not. It is a store of wealth and should always be treated as such. You should buy gold to hold, not trade. You should buy gold to pass wealth on to the next generation "under the table", not to make a profit on. You should buy gold to hedge against dollar destruction, not sell for more dollars that are likely to be destroyed.
The gold Rush cannot be over with.....until we get our debt under control and stop printing to buy our own bonds....and stop QE....and stop activating the plunge protection team making a synthetic market....and that ain't going to happen. The gold rush won't be over with until we hit the big red reset button and reformulate the dollar that's a fact Jack.
...but Gold ain't nothing...wait 'til you see what silver has in store....YYYouch!!
Humans will come and go, but Gold will always be there to make us dream.
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