Golden Gamble II

And so we’re told this is the golden age

And gold is the reason for the wars we wage

Though I want to be with you be with you night and day

Nothing changes on New Year's Day

                        U2 1983

Tonight I want to talk about some of the myths regarding gold.  The name of this blog is Golden Gamble II.  It narrowly beat out the name “Topic so boring to most people that no one will read it”.  You can read Golden Gamble I, about my decision to bet everything on gold, here.

The first myth about gold is that it does better when there is chaos in the world, and vice versa.  In other words, it's thought of as a safe haven against disasters.  This is garbage.  Whenever there is some shocking, negative headline, such as tsunamis, wars, or political assassinations, the mainstream media acts shocked when the price of gold stays the same or goes down.  This happens constantly; so much so that it’s shocking that they’re constantly shocked.  If the price of gold goes up after one of these disasters they of course attribute it to the catastrophe. 

Look, we're never going to get an end of the year wrap up that goes something like this:  “2011 was a great year. We had no civil wars, no sectarian violence, and no dictators attacking their own citizens.  Also, there were no tornadoes, earthquakes, or landslides.  In politics, everyone got along beautifully.”   Unfortunately, catastrophes happen every year.  The only surprising thing would be if they didn't.  The price of gold has virtually nothing to do with them.  The main drivers for the price, as discussed here, are currency debasement, inflation, and a lack of attractive alternative investments.  Shock and awe ain't one of them.

The next myth is that all gold bugs think civilization is coming to an end, and all of us will soon be living in the outdoors with the only things to protect us being guns and gold.  Actually, some people do think like this.  I've spoken with one or two.  They're highly entertaining.  For hard core gold bugs, gold is almost a religion, with their belief in the value of gold constant in all times.  The truth is, however, that for most people ownership of gold is simply an investment like any other.  It's just the proper play right now.  If we strengthen the dollar and crush inflation, I will be all out of gold as fast is I was all in, with the click of a mouse.

The third myth is that gold acts as insurance, so that all portfolios should have 5% to 10% of their money in gold at all times.  Wait, what?  I may do a blog about financial advisors, and it's not going to be pretty.  These type of mantras, repeated constantly without any thought or understanding as to the fundamentals, are what get people killed.  If the fundamentals of gold are good, you need to have as much in your portfolio as you would for any investment that you think is going up.  If they are poor, don't have a penny in it.

My next blog, which will be my last one about gold for a while, will be about predictions for the future.  I'm either going to call it Golden Gamble III or “Killin’ it in 12”.

Have a good night everyone.

JR