Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
US Housing Market House Prices Momentum Analysis - 26th Feb 21
FOMC Minutes Disappoint Gold Bulls - 26th Feb 21
Kiss of Life for Gold - 26th Feb 21
Congress May Increase The Moral Hazard Building In The Stock Market - 26th Feb 21
The “Oil Of The Future” Is Set To Soar In 2021 - 26th Feb 21
The Everything Stock Market Rally Continues - 25th Feb 21
Vaccine inequality: A new beginning or another missed opportunity? - 25th Feb 21
What's Next Move For Silver, Gold? Follow US Treasuries and Commodities To Find Out - 25th Feb 21
Warren Buffett Buys a Copper Stock! - 25th Feb 21
Work From Home Inflationary US House Prices BOOM! - 25th Feb 21
Man Takes First Steps Towards Colonising Mars - Nasa Perseverance Rover in Jezero Crater - 25th Feb 21
Musk, Bezos And Cook Are Rushing To Lock In New Lithium Supply - 25th Feb 21
US Debt and Yield Curve (Spread between 2 year and 10 year US bonds) - 24th Feb 21
Should You Buy a Landrover Discovery Sport in 2021? - 24th Feb 21
US Housing Market 2021 and the Inflation Mega-trend - QE4EVER! - 24th Feb 21
M&A Most Commonly Used Software - 24th Feb 21
Is More Stock Market Correction Needed? - 24th Feb 21
VUZE XR Camera 180 3D VR Example Footage Video Image quality - 24th Feb 21
How to Protect Your Positions From A Stock Market Sell-Off Using Options - 24th Feb 21
Why Isn’t Retail Demand for Silver Pushing Up Prices? - 24th Feb 21
2 Stocks That Could Win Big In The Trillion Dollar Battery War - 24th Feb 21
US Economic Trends - GDP, Inflation and Unemployment Impact on House Prices 2021 - 23rd Feb 21
Why the Sky Is Not Falling in Precious Metals - 23rd Feb 21
7 Things Every Businessman Should Know - 23rd Feb 21
For Stocks, has the “Rational Bubble” Popped? - 23rd Feb 21
Will Biden Overheat the Economy and Gold? - 23rd Feb 21
Precious Metals Under Seige? - 23rd Feb 21
US House Prices Trend Forecast Review - 23rd Feb 21
Lithium Prices Soar As Tesla, Apple And Google Fight For Supply - 23rd Feb 21
Stock Markets Discounting Post Covid Economic Boom - 22nd Feb 21
Economics Is Why Vaccination Is So Hard - 22nd Feb 21
Pivotal Session In Stocks Bull Bear Battle - 22nd Feb 21
Gold’s Downtrend: Is This Just the Beginning? - 22nd Feb 21
The Most Exciting Commodities Play Of 2021? - 22nd Feb 21
How to Test NEW and Used GPU, and Benchmark to Make sure it is Working Properly - 22nd Feb 21
US House Prices Vaccinations Indicator - 21st Feb 21
S&P 500 Correction – No Need to Hold Onto Your Hat - 21st Feb 21
Gold Setting Up Major Bottom So Could We See A Breakout Rally Begin Soon? - 21st Feb 21
Owning Real Assets Amid Surreal Financial Markets - 21st Feb 21
Great Investment Ideas For 2021 - 21st Feb 21
US House Prices Momentum Analysis - 20th Feb 21
The Most Important Chart in Housing Right Now - 20th Feb 21
Gold Is the Ultimate Reserve Asset - 20th Feb 21
Is That the S&P 500 And Gold Correction Finally? - 20th Feb 21
Technical Analysis of EUR/USD - 20th Feb 21
The Stock Market Big Picture - 19th Feb 21
Could Silver "Do a Palladium"? - 19th Feb 21
Three More Reasons We Love To Trade Options! - 19th Feb 21
Here’s What’s Eating Away at Gold - 19th Feb 21
Stock Market March Melt-Up Madness - 19th Feb 21
Land Rover Discovery Sport Extreme Ice and Snow vs Windscreen Wipers Test - 19th Feb 21
Real Reason Why Black and Asian BAME are NOT Getting Vaccinated - NHS Covid-19 Vaccinations - 19th Feb 21
New BNPL Regulations Leave Zilch Leading the Way - 19th Feb 21
Work From Home Inflationary House Prices BOOM! - 18th Feb 21
Why This "Excellent" Stock Market Indicator Should Be on Your Radar Screen Now - 18th Feb 21
The Commodity Cycle - 18th Feb 21
Silver Backwardation and Other Evidence of a Silver Supply Squeeze - 18th Feb 21
Why I’m Avoiding These “Bottle Rocket” Stocks Like GameStop - 18th Feb 21
S&P 500 Correction Delayed Again While Silver Runs - 18th Feb 21
Silver Prices Are About to Explode as Stars are Lining up Like Never Before! - 18th Feb 21
Cannabis, Alternative Agra, Mushrooms, and Cryptos – Everything ALT is HOT - 18th Feb 21
Crypto Mining Craze, How We Mined 6 Bitcoins with a PS4 Gaming Console - 18th Feb 21
Stock Market Trend Forecasts Analysis Review - 17th Feb 21
Vaccine Nationalism Is a Multilateral, Neocolonial Failure - 17th Feb 21
First year of a Stocks bull market, or End of a Bubble? - 17th Feb 21
5 Reasons Why People Prefer to Trade Options Over Stocks - 17th Feb 21
The Gold & Gold Stock Corrections Are Normal - 17th Feb 21
WARNING Oculus Quest 2 Update v25 BROKE My VR Headset! - 17th Feb 21
UK Covid-19 Parks PACKED During Lockdown Despite "Stay at Home" Message - Endcliffe Park Sheffield - 17th Feb 21
How to Invest in ETFs in the UK - 17th Feb 21
Real Reason Why Black and Asian Ethnic minorities are NOT Getting Vaccinated - NHS Covid-19 Vaccinations - 16th Feb 21
THE INFLATION MEGA-TREND QE4EVER! - 16th Feb 21
Gold / Silver: What This "Large Non-Confirmation" May Mean - 16th Feb 21
Major Optimism for Platinum, Silver, and Copper - 16th Feb 21
S&P 500 Correction Looming, Just as in Gold – Or Not? - 16th Feb 21
Stock Market Last pull-back before intermediate top? - 16th Feb 21
GAMESTOP MANIA BUBBLE BURSTS! Investing Newbs Pump and Dump Roller coaster Ride - 16th Feb 21
Thinking About Starting to Trade This Year? Here Are Some Things to Keep in Mind - 16th Feb 21
US House Prices Real Estate Trend Forecast Review - 15th Feb 21
Will Tesla Charge Gold With Energy? - 15th Feb 21
Feeling the Growing Heat and Tensions in Stocks? - 15th Feb 21
Morgan Stanley Warns Gasoline Industry Is About to Become Totally Worthless - 15th Feb 21
Debts Lift Gold - Precious Metal Prices Will Rise on a Deluge of Red Ink - 15th Feb 21
Platinum Begins Big Breakout Rally - 15th Feb 21
How to Change Car Battery Without Losing Power, Memory, Radio Code Settings - 15th Feb 21
Five reasons why a financial advisor can make a big difference to your small business - 15th Feb 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

MarketWatch Attempts to Explain "Why Gold is a Bad Investment"

Commodities / Gold and Silver 2010 Nov 15, 2010 - 03:33 AM GMT

By: Mike_Shedlock

Commodities

Best Financial Markets Analysis ArticleJonathan Burton at MarketWatch attempts to present a case Why gold is a bad investment.

Gold isn’t like a stock or a bond. It offers no income, no dividend, no earnings. It is considered a store of value, an alternative currency that’s safe beyond reproach, but it is not cash in the bank, or even the mattress. Gold has no untapped intrinsic value; it is worth only what people are willing to pay for it. And lately, many people have been only too willing.


“Gold is going up because people are buying it, and people are buying it because it’s going up,” said Leonard Kaplan, president of Prospector Asset Management in Evanston, Ill., and a longtime gold trader.

“Gold is always a speculation,” James Grant, editor of Grant’s Interest Rate Observer and a longstanding gold bug, noted in his latest newsletter.

To Jon Nadler, senior analyst at Kitco Metals Inc. and a veteran gold-market watcher, Wall Street’s buy recommendations remind him of speculation in 2008 that propelled another must-have commodity — oil, the “black gold” — to stratospheric heights.

“I don’t think gold is an opportunity at $1,400 an ounce,” Nadler said. “Just because gold has been above $1,000 for 14 months, everybody thinks it’s a new paradigm. This is very much what we heard about oil a couple of years ago.”

“Gold at $1,400 is not what I would call an investment,” said Kaplan, of Prospector Asset Management. “An investment is something you buy near its value. If gold costs $450 or $500 to produce, at $1,400 you don’t have value, you have momentum.”

“I called gold the ultimate bubble, which means it may go higher,” Soros told an investor conference in New York in mid-September, repeating a warning he’d made earlier this year. “But it’s certainly not safe and it’s not going to last forever.”

“Gold would probably provide a decent hedge against a declining dollar, but so would foreign stocks, which you can value,” said Scott Kays, an Atlanta-based financial adviser who does not include physical gold in client portfolios. “If gold becomes overvalued, there are places you can cash in on factors that drive up gold, without as much risk,” such as emerging-market bonds.

Everything Is Speculation

“Gold is always a speculation,” says James Grant.

The legal dictionary defines speculate "to assume a business risk in hope of gain; to buy or sell in expectation of profiting from market fluctuations"

By that definition, what isn't speculation?

Buying bonds is speculating that a company will be able to pay you back. Sometimes it works and sometimes it doesn't as the collapse in GM shows. How many widows on fixed income counting on GM yields got wiped out?

Little did GM bond investors realize they were foolishly betting (speculating) that GM would not go bankrupt. They lost.

What about technology stocks, especially "bellwethers" like Cisco?

The results for 10 years running speak for themselves: Congratulations to Cisco Insiders for Dumping 6,620,750 Shares, 60% of Holdings in 6 Month; Cisco CEO Whines about Taxes; Is Chambers Worth a Dime?

Purchasing any stock is speculating whether or not the company can return value to shareholders.

Cisco has not paid a dividend ever. Whether it starts to now is moot. Those buying dividend stocks are speculating the dividend will not be cut. In addition to GM, look what happened to the dividends of Citigroup, Bank of America, Wells Fargo, and the entire financial sector in the last few years.

Buying those stocks was not speculation? And gold is? Please be serious.

Nadler Nonsense

Jon Nadler, senior analyst at Kitco Metals Inc. and a veteran gold-market says "Just because gold has been above $1,000 for 14 months, everybody thinks it’s a new paradigm."

Excuse me for asking Jon, but can you please name some names of people who proclaimed gold to be "a new paradigm."

While you are addressing that question Jon, please comment on this: Nadler Nonsense "Gold Is Not in a Bull Market"

Buying Near Value

Kaplan, of Prospector Asset Management says “An investment is something you buy near its value." Really? Is a value-bag of potato chips an investment?

More seriously, and since I am in a question asking mood, why is Kaplan the arbiter for determining the proper "value" of gold?

Holding Dollars is Speculating

By the definition I gave above, even those holding dollars or treasuries are speculating. The speculation in this sense is that dollars will buy more (or lose less), than other investments.

In light of the fact that everything is speculation, which of the following is the better bet?

1. The Fed continues to debase the dollar and gold soars
2. Cisco or Microsoft goes parabolic once again (and gold doesn't follow)

Bear in mind, gold is not a sure thing. Gold fell from 850 to 250 over a 20 year period with inflation every step of the way. Gold is not an inflation hedge as most think.

Rather, gold is a hedge against deflation or extreme inflation. In ordinary inflation, and periods of disinflation, gold tends to do poorly.

Reflections on "Sure-Things"

Gold is not a "sure-thing". Then again, there are no "sure-things" anywhere.

Interestingly David Tepper, a billionaire hedge fund titan and president of Appaloosa Management disagrees, telling CNBC "The Fed is going to come in with QE. Right? Then what's going to do well? Everything! In the near term - Everything!"

Please see Sure Thing?! for a discussion and video of Tepper.

As a followup to that story ZeroHedge points out David Tepper Dumps 20% Of Financial Holdings During Quarter Of Infamous CNBC Speech.

Question of Probability

When it comes to speculating (investing if you prefer), it helps to think of things in terms of probabilities. Please consider this snip from "Straight Talk" with Economic Bloggers

9. What's the question we should have asked, but didn't? What's your answer?

Mish: I guess it would be: "Does your crystal ball have a forecast for the stock market? For Gold? The US Dollar?" Let's start with gold. I see articles everyday by some prominent people saying things like "I know gold is going to ... whatever".

The thing is, they don't know and neither do I. Only a charlatan or a fool can make such a claim. Of course the fools and charlatans may be right, but it is not because they "know" anything.

One thing I do know is that I don't know things of that nature. That puts me ahead of all those who claim to know the unknowable.

Probabilities

I prefer to look at things in terms of probabilities. It is highly likely the Fed embarks on Quantitative Easing. That should be good for gold, but short term that QE may easily be priced in.

Moreover, the Fed may go slower than what the market thinks.

Thus, there could be a huge "sell the news" event in both gold and the stock market on the QE announcement, no matter what that announcement is.

Should that happen, given that gold is in a long-term bull market, and given that Bernanke will likely go back to the QE well, I expect buying the next big dip in gold would be a higher probability event than buying a 10% correction in the stock market.

There is a lot going for gold, but it is by no means a "sure thing".

Investing vs. Speculation

No matter what you do with your money, even holding it, you are taking a chance. The prudent thing is to have a cash cushion of a year's worth of living expenses in case you lose your job. If you don't have a cash cushion and you don't have insurance you are speculating you won't lose your job or you won't get sick.

I believe it's prudent to own some gold, but no more than you can sleep with.

Putting everything you have on gold is neither prudent nor practical, especially for those managing other people's money.

Risk management is crucial, no matter what you do.

In a practical sense then, one can make a case that "a" differentiating factor between investing and speculating is risk management.

Gold is Money

The bottom line to me is that "gold is money". We know that gold is money because it acts like it. Please see Misconceptions about Gold for a discussion.

By the way, that "Misconceptions" article was written by "Trotsky" also known as my friend "HB" who now has his own Austrian Economic blog called Acting Man. His latest article is Robert Zoellick Mentions the Un-Word.

The "Un-Word" is of course gold.

Stunning Skepticism

The skepticism in the face of this rally is nothing short of stunning. The silliest line in the MarketWatch article is that "gold is worth only what people are willing to pay for it."

Excuse me, but no tangible assets are worth more than people are willing to pay for them.

Although there can be a huge pullback at any time, the fact that there is so much skepticism about this rally, from so many places, suggests gold is likely to go higher. Bottoms are formed when nearly everyone is agnostic. That happened with gold in 2000.

Tops are formed when nearly everyone is a believer. In regards to housing, belief peaked in summer of 2005. I called the peak of the housing bubble in real time, precisely on time, in It's a Totally New Paradigm.

Note that in contrast to what Nadler says about gold, people did use the phrase "totally new paradigm" in regards to home prices. Time Magazine even went "gaga" right on the cover.

For a series of real time updates on housing, please see Collapse of the "Ownership Society"

In regards to gold, we are a long, long way from everyone being a believer. By that measure, it's highly unlikely the top is in.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2010 Mike Shedlock, All Rights Reserved.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules