Sunday, May 16, 2010

Gold again

Everyman’s speculation

The April 5 posting was about gold (see: " Gold: Be sure you know what you’ve hedged " ). So many people were touting gold that it seemed that some perspective was needed. In the long run it isn't a very good investment, but as a short run speculation, it has its moments.

When it has those moments, I get told-you-so emails from one set of friends and watch-out-for-the-bubble emails from others. But, I like to point out that Boeing made as big a percentage move early this year as gold did recently; Boeing pays a dividend, and as a long run investment, Boeing beat gold coming (dividends) and going (price appreciation).

What is certain is that the price of gold DOES measure distrust. So, it’s a good hedge against distrust. If you needed proof, recent events make it apparent. Developments in Europe raise the prospect of deflation if governments tighten budgets. Yet, gold went up. Note: deflation not inflation. Why up? --distrust of government, fiat money, the economy, banks, and just about everything else.

Gold will probably continue in that role as a hedge against distrust right up until people stop trusting it. Does that sound like fertile ground for bubbles, fraud, and pump-and-dump shops?

The problem with discussing gold is that people don't get past yesterday’s price and a short-run forecast. They'd be happy to participate in a bubble in the belief they would know when to get out. Besides, a bubble is only a bubble after it pops. Until then, it is just the new reality. So, all most people really care about is the date of the inflection point. That’s the kind of advice where if you’re right, it proves THEY are smart, and if you’re wrong, YOU are dumb. Given an advice game where if you’re right, they win; if you’re wrong, you lose, I pass.

It is worth noting that the other hedge against distrust has been Treasuries. That ought to worry anyone thinking seriously about it. The real question is which --Treasuries or gold -- will reverse trend first. Each has very different consequences.

For disclosures see: "Gold: Be sure you know what you’ve hedged" and "Debt markets as indicator or a trade."

No comments:

Post a Comment