The gold price (in dollars) is taking a much deserved rest, giving gold haters cause to pat themselves on the back. Many CFAs and CFPs really don’t understand why anyone would trade government paper for shiny yellow metal.
Charles Sizemore, CFA, wrote back in June, “Gold today is as risky as tech stock in 1999 and Miami condos in 2005, and the arguments supporting its rise are every bit as flimsy.”
Sizemore goes on to say that gold is not an investment and that anyone buying gold is only speculating, engaging in the “greater fool” theory.
Gold is an anti-investment for sure, but far from a speculation depending upon a person’s reasons for buying. Those hoping for a quick run up in their GLD shares to generate more paper dollars in the short term are speculating. Those squirreling away a Krugerrand on occasion to hold as hyperinflation insurance are not speculating at all. Just the opposite. Gold is the perfect money because it is, generally marketable, divisible, has a high value per unit weight, fairly stable in value, durable, recognizable, and homogeneous.
The greater fools are those that don’t stash some yellow metal away.
Sizemore goes on to claim that gold is not a store of value. “But if your stated purpose in buying gold is its role as a store of value, even volatility to the upside should be unsettling,” he writes. “You can’t just create ‘value’ out of thin air.”
I couldn’t have said it better myself. That’s the reason to own gold. Mises’s Regression Theorem tells us that people accept paper dollars based upon a time when dollars were backed by gold, the last thread being cut 40 years ago. The dollar has lost 80% of its value just since in the last four decades. Government creates more and more paper and digital money that is worth less and less. Eventually the demand for the government’s money will fall to zero.
Sizemore then claims everyone is on the buy side of the gold trade because its price is posted on the front page of Yahoo Finance and there are all sorts of businesses looking to buy gold.
The DJIA and the S&P are also listed on the front page of Yahoo Finance and Sizemore isn’t predicting a collapse in the stock market. And since when is it the sign of a bubble when entrepreneurs pop up to buy product at 40 cents on the dollar?
Sizemore concludes that the airing of Atlas Shrugged Part I and the Utah Legislature’s passage of a bill making gold legal tender are “two anecdotal signs that tell me the end of the gold boom is nigh.”
“Gold doesn’t have any intrinsic value,” Larry M. Elkin, president of the Palisades Hudson Financial Group in Scarsdale, N.Y. told The New York Times. “It’s this era’s wampum. At one point you could buy Manhattan for beads.”
What especially annoys Mr. Elkin about owning gold is how irrational it is. While gold just sits there, blue-chip stocks represent the production of a going concern.
Driving through Nevada gold mining country, Las Vegas Sun reporter J. Patrick Coolican, writes,
The mine is a thing to behold, a giant pit 2,000 by 2,800 feet, a monument to the genius of human innovation, as well as folly. People like to look at gold, I guess, although there are better things to look at. And they like to hoard it — excuse me — invest in it, when they get scared.
As a friend says, when the aliens come down, they’ll be baffled by the whole gold thing.
Aliens will be baffled by the whole government paper money thing.