This week gold has moved to new all-time highs. I have mixed feelings about it. On the one hand, it's a great personal vindication, because I've been talking about gold as my "best idea" throughout the entire credit crisis.
It has really turned out to be the best idea, in good times and bad -- at least among risky assets. At the worst of it, gold fell only 28% from its previous highs. But the S&P 500 fell 56.8% -- more than twice as much. Yet from their respective lows through yesterday's close, both have gone up the same amount: 71%.
Gold versus stocks? It's not hard to pick the one you wish you had held through these difficult times. Gold. Went up just as much, but only went down half as much.
And there's one thing you can say about gold that you can't say about anything else. It's at an all-time high. That means that no matter when you bought it, you've got a profit.
Stocks? They've had a heck of a move over the last 15 months, to be sure. But they're still 26% off their all-time highs. And they've barely shown any profit at all over the last decade. Over that long period gold has quadrupled.
Is it time to sell? I must say it's tempting, when gold has come so far while most other assets have struggled so much.
But the time to sell isn't necessarily when an asset is at all-time highs. It's when everyone loves it, and is absolutely convinced it's going higher. That description may fit Apple (AAPL) pretty well, but it sure doesn't fit gold. In the minds of most investors, gold remains a hated asset and those who advocate gold are dismissed as fanatical "gold bugs."
Yes, I know there are informercials about gold on radio and 30-second ads on television. But that doesn't mean gold is as overloved as Apple. Quite the contrary. It means there are a lot of gold-hating investors who are too smart for their own good, and have turned up their noses at the best-performing asset class in the world right now.
And why shouldn't it be the best performing? Throughout history, gold has been money. Today it's a monetary underground railroad, used by people who want to escape paper money when it's about to be debased by the governments who print too much of it. When the Federal Reserve and the European Central Bank create massive amounts of new money to bail out the world banking system, that's debasement on a grand scale. A ticket on the monetary underground railroad gets very expensive -- which is why gold is at all-time highs.
The problem currency right now is the euro. Thanks to the risk of debt default by Greece and other smaller European nations, the ECB has had to commit to so-called "quantitative easing." That means printing money and buying government bonds with it. That's not so unusual on the face of it. Central banks do it all the time -- the Fed certainly does. What's unusual is that the ECB has never done it before, and, in fact, is prohibited by statute from doing it at all. And yet it's going to do it now, statute or no statute.
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