Posted on 10/25/2010 7:43:44 AM PDT by SeekAndFind
I first wrote about gold in early July at WSJ.com. I took a lot of heat then but the jury is still out.
In fact, since July 9, stocks and gold have performed almost exactly the same.
But with stocks trading at record low multiples over earnings (versus bond yields) and with gold at an all time high I can think of 11 straightforward reasons why the Gold Bubble is going to burst and stocks are the primary place one should put their money.
* It has very few industrial uses.
* Gold has no dividend yield.
* Gold has no earnings yield.
* The US should start selling its gold to pay down its debt.
* Interest rates are at zero and the Fed is printing money.
* John Paulson and George Soros can't carry the market forever.
* Gold production is rising.
* Gold sentiment is at an all-time bullish high
* Assets in the GLD ETF, the ETF which tracks gold, are also reaching a level usually associated with a top
* The Oracle is a huge gold bear (That's Warren Buffet)
(Excerpt) Read more at businessinsider.com ...
Brett Arends of The Wall Street Journal on the other hand, tells us why he believes Gold is NOT in a bubble and there is NOT YET a mania.
See this article:
http://online.wsj.com/article/SB10001424052748703843804575534010291489910.html
I get a huge kick out of the ads promoting gold as an investment by stating “gold has gone up every year for ten years,” or the equivalent.
Can you think of a better reason for suspecting that it might be about to go down?
Sort of like promoting real estate investments in early 2008 by pointing out that real estate had been going up for a really long time. So we should obviously expect it to keep going up.
Economics 101: Nothing goes up forever.
* Interest rates are at zero and the Fed is printing money.
Many would argue this is exactly the reason gold is setting records (in terms of the dollar). With interest rates low and banks failing every week, the opportunity cost of being in gold is low.
RE: With interest rates low and banks failing every week, the opportunity cost of being in gold is low.
The author reasons thusly :
“Eventually interest rates will begin to go up as the economy firms (which it will do at even the slightest hint of re-inflation), driving up the value of the dollar. Gold will collapse at that moment”
I see the Wall Street propaganda machine is out in full force. Keep buying those stocks and bonds.
Right. It would seem that this cancels out all the other reasons. It's not that gold is a bubble but the dollar is a sinkhole.
Well, let’s see. He says he advised dumping gold in July. How did that work out? Here’s the three-month chart of the gold trust fund (1/10th the price of gold):
http://finance.yahoo.com/q/bc?s=GLD&t=3m&l=on&z=l&q=l&c=
Flip side of it is that Gold can go to around 2,500 before it hits the inflation adjusted highs that it reached in the ‘70’s (was told this by a numismatic professional last week) . . . and our country and economy and dollar are in a much tougher spot now than then. I’m not sure whether it’s a good investment or not . . . just saying.
So much for that one.
RE: He says he advised dumping gold in July. How did that work out? Here’s the three-month chart of the gold trust fund (1/10th the price of gold)
In the 1990’s ( I believe around 1994 ), I subscribed to the newsletter of one, Nick Guarinio called the WALL STREET UNDERGROUND. As early as late 1994, he was advising his readers to get out of stocks because the fundamentals of many of the technology companies driving the NASDAQ run-up were built on sand. He also warned about the derivatives time bomb.
Anyone who litened to him would have missed the 5 year stock market run-up from 1995 to 2000.
Of course, had you put your money in treasuries and bonds, you would have been saved from the eventual DOT COM BUST.
As for the derivatives time bomb. He was eventually proven right -— 13 years later with the SUBPRIME BUST.
So, this man warning about the Gold BUBBLE busting WILL EVENTUALLY (Emphasis) BE PROVEN RIGHT. NOTHING GOES UP FOREVER.
But WHEN ??
Anyone who can answer the WHEN question will be the next billionaire.
Dividend Yield
What Does Dividend Yield Mean?
A financial ratio that shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock.
Isn't that a deceptive declaration?
I'd word the "no yield" thing another way:
In normal times you are compensated for holding investments either in interest payments or dividends. If you look at bond yields and treasury bonds, they both "yield" historic lows, so the opportunity costs you forgo in holding gold are lower than ever. Yes, if yields were up there would be less interest in godl, probably.
Given the price of gold, manufacturers usually substitute
cheaper materials with similar properties for gold whenever
possible. Thats why you only see gold in milspec or
premium grade connectors where corrosion is a problem.
Silver is actually a better conductor of heat and electricity, and is far cheaper.
You're half right.
Something (read the U.S. Dollar) can go down all the way to zero.
Right now, betting against the U.S. Government looks like a pretty sure thing to this country boy.
Gold is not an investment. Gold is money. It always makes sense to buy some gold - purely as wealth insurance.
But it becomes critical to buy it - at whatever price - whenever the fiat currency is devaluing. Get rid of that useless paper and save your wealth.
Buying commodity stocks and other hard assets also makes sense. Not all stocks are created equal - when the snap devaluation hits, commodity stocks will go to the moon and stay there.
The same can be said for silver.
BUy it high and get burned.
Buy it at a ‘resonable’ level, not so much.
Once silver got over 15 USD/oz, it was time to stop.
I guess when times get hard what has more *real* value - 100 oz of silver or a 45 ACP and 50 rounds of ammo?
BTW to figure out what anything ‘cost’ then and now use
http://www.westegg.com/inflation/infl.cgi
to sort of inflation. NEar as I can tell gosoline is free, based on inflation rates....
The buying power of Gold remains static over time. It’s not going up, or down.
1 oz of Gold brought 440 loaves of bread in 1930, and roughly the same today.
1 oz of Gold brought 1/200 of a new house in 1930, and roughly the same today.
It’s not an investment. It is money - but a form of money that doesn’t devalue.
I am not saying there won’t be a decline in price but some of his reasons are laughable.
The US has around 148 million ounces of gold in Ft. Knox. At $1,350 per ounce that amounts to about $200 billion or around 1.5% of our national debt. So there is no way it can be sold to pay down debt. Doing so would cause the price of gold to go through the roof.
Also, he says there are few industrial uses. Not true. It is just that there are other metals that do the job almost as well and are cheaper to use.
And the mining of gold is in decline rather than increasing. Yes there is more exploration because of the high price but the mines discovered have smaller reserves and cost more to produce.
The largest factor in the price of gold is psychology of investors. It seems completely illogical that the Fed’s threat to launch a QE2 program of $2 trillion will lead to a collapse in the price of gold.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.