“Right now, gold is less than an ideal investment.”
Gold prices are now down slightly year-to-date, 13% below its 2012 highs of near $1,800, and 18.7% below its all time high of $1920.
I spoke with Paul LaMonica of CNN/Money about having Gold exposure, and more importantly, how investors should think about Gold:
“Ritholtz, who said his firm does have a position in gold, said that having some gold investments makes sense. Gold should rise when the U.S. dollar is weakening and inflation is a worry.But he added that the biggest problem with the metal is that it’s not as easy to objectively value it like a stock or bond. Still, he said some investors treat gold like a “cult” and refuse to believe that the prices can ever go down.
“Gold doesn’t have any earnings. It doesn’t pay you interest. It’s a shiny yellow metal. Its value only comes from its relative rarity. It should trade on supply and demand,” he said.
Gold is a commodity first and foremost, not a currency. Commodity prices, even for something like gold that doesn’t have as much commercial use as other metals, tend to closely track consumer demand. So it should be no surprise that gold prices are now tumbling.”
The other factor to note: Inflation is rather modest versus the 2003-07 period, primarily due to unemployment and capacity under-utilization. The case for gold gets stronger in a money printing environment when the economy gets better, and inflation picks up.
Last July, I noted “Gold was a trade, not a religion” at a conference. There were scattered boos and catcalls.
Source: ‘Au’-sterity for gold as prices plunge Paul R. La Monica CNN/Money May 14, 2012 http://money.cnn.com/2012/05/14/markets/thebuzz/
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
“scattered boos and catcalls”: that’s when you know you’re on to something…
GLD: Charmin without the soft
Don’t worry. Gold is up 60 cents as I write this. That’s ‘real money’ … pun intended.
That is straight up incorrect on a factual basis. Gold is a currency. If you have any doubt — look up the definition of a currency.
From Wikipedia: “currency refers to a generally accepted medium of exchange”
Being a currency does not in fact guarantee that your value will rise but it still doesn’t make you any less a currency.
Gold happens to be the only universal currency.
It also happens to be a currency with finite supply as opposed to limitless supply and therefore one can debate the inherent attributes of that. Again like any other asset its value will rise and fall.
Based on what I have read on this blog I doubt your claim that you are long gold. If you were long gold like those that you mock — Zero Hedge, Jim Grant etc you would be very long gold.
Never the less you are a great blogger and your site is fantastic. Keep up the good work.
@cognitive
When was the last time you, or anyone you know, used Gold as a currency?
The dollar is king. Yup. Nothing beats a greenback. It's a currency, not a commodity.
The dollar is up and everything else is down. Surprise, surprise. Money fleeing any asset class must run to the dollar first. Any money smart enough to run to the dollar is smart enough to use it as a stepping stone to something else.
A strong dollar is the Fed's worst nightmare.
http://www.youtube.com/watch?v=WbrjRKB586s
cognitive dissonance Says: May 15th, 2012 at 8:12 am
That is straight up incorrect on a factual basis. Gold is a currency. If you have any doubt "” look up the definition of a currency. From Wikipedia: "currency refers to a generally accepted medium of exchange" Being a currency does not in fact guarantee that your value will rise but it still doesn't make you any less a currency. Gold happens to be the only universal currency.
reply: ———– Try spending it at Best Buy, the grocery store, the vending machine, a slot machine, Wal-Mart, for gas, or for anything besides paying off a bookie or cash from the pawn shop and then compare your results to the dictionary definition. It’s not a currency. It’s a cult. Much like Apple, but worse.
BG – Academic research has shown that gold is not just a hedge against inflation. It actually does well when real interest rates are negative. That is the only explanation that works for why gold did well in high inflation times in the 70′s and in low inflation times such as the we have today. In both periods real interest rates are negative so it makes sense for investors to hold a physical asset that won’t lose value in real terms. That is the main story that most investors and pundits don’t seem to understand
Gold can be another medium of exchange such as the US dollar.
Gold is more of a barometer of faith in fiat currency across the globe and was used as a hedge in a deflationary environment as CBs enacted policies of QE and govts took on more debts to stimulate/bailout. When inflation does really rise, gold probably made its move already. Also, lets not forget that gold did rise big time in late 2008 and early 2009 as the dollar rose/swelled as money flew into the safety of greenbacks and out of most other risk assets. It happened before, it can happen again. Just sayin. I think many who view gold as a currency do so because of our history and that gold is finite, and paper currency certainly is not.
Dear Dead Hobo and Bennie:
it is sometimes worthwhile to look outside the borders of the United States to determine what is or may be going on in the world.
Billions of people across the globe view gold as a currency.
Should these people decide that baseball cards are currency then blammo — you can trade your Vida Blue cards for goods and services. That’s how currencies work — communal acceptance.
Dollars are the same now as T-Bills — they yield nothing and we hope that due to their wide accepatnce and broad dissemination they will continue to be accepted for goods and services and in fact they will most likely be.
But remember this — Government debt is associated with a specific Government NOT an entire populace. Good luck to both of you. And Best Buy…
All of this value migrating to the dollar is waiting for the next safe haven: Facebook stock.
@cognitive
“Billions of people across the globe view gold as a currency.”
Really? Where? Who? Are we talking about all of that gold in closets in India and China?
I consider it to be insurance (or a hedge if you will, since someone I know once said "everything is a hedge".) IMO, everyone should own a little, but only after the basics of food, water, shelter, and protection have been bought and paid for.
If it exceeds 5-10% of your net worth, that’s speculation. Nothing wrong with that, if that's your thing.
And it IS magical. Whenever I'm depressed, I get out my little bag of gold dimes and ounce coins, and run them through my fingers and drop them on the table like a miser from days of old. It never fails to bring a smile to my face.
BennyProfane Says:
Really? Where? Who? Are we talking about all of that gold in closets in India and China? ________________
Central Banks. All of them.
Petey, if I want to read silly responses like that, I’ll go over to Naked Capitalism.
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