Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Gold Price Closely Tracks Debt-to-GDP Ratio - 9th Apr 20
Gold, Silver and Rigged Market Socialism - 9th Apr 20
Going to School in Lockdown Britain, Dobcroft Sheffield - 9th Apr 20
Amazon Face Masks to Protect Against Covid-19 Viral Particles N95, FPP2, PM2.5, for Kids and Adults - 9th Apr 20
Is Natural Gas Price Ready For An April Rally? - 8th Apr 20
Market Predictions And The Business Implications - 8th Apr 20
When Will UK Coronavirus Crisis Imrpove - Infections and Deaths Trend Trajectory Analysis - 8th Apr 20
BBC Newsnight Focuses on Tory Leadership Whilst Boris Johnson Fights for his Life! - 8th Apr 20
The Big Short Guides us to What is Next for the Stock Market - 8th Apr 20
USD Index Sheds Light on the Upcoming Gold Move - 8th Apr 20
The Post CoronaVirus New Normal - 8th Apr 20
US Coronavirus Trend Trajectory Forecast Current State - 7th Apr 20
Boris Johnson Fighting for his Life In Intensive Care - UK Coronavirus Crisis - 7th Apr 20
Precious Metals Are About To Reset Like In 2008 – Gold Bugs, Buckle Up! - 7th Apr 20
Crude Oil's 2020 Crash: See What Helped (Some) Traders Pivot Just in Time - 7th Apr 20
Was the Fed Just Nationalized? - 7th Apr 20
Gold & Silver Mines Closed as Physical Silver Becomes “Most Undervalued Asset” - 7th Apr 20
US Coronavirus Blacktop Politics - 7th Apr 20
Coronavirus is America's "Pearl Harbour" Moment, There Will be a Reckoning With China - 6th Apr 20
Coronavirus Crisis Exposes Consequences of Fed Policy: Americans Have No Savings - 6th Apr 20
The Stock Market Is Not a Magic Money Machine - 6th Apr 20
Gold Stocks Crash, V-Bounce! - 6th Apr 20
How Can Writing Business Essay Help You In Business Analytics Skills - 6th Apr 20
PAYPAL WARNING - Your Stimulus Funds Are at Risk of Being Frozen for 6 Months! - 5th Apr 20
Stocks Hanging By the Fingernails? - 5th Apr 20
US Federal Budget Deficits: To $30 Trillion and Beyond - 5th Apr 20
The Lucrative Profitability Of A Move To Negative Interest Rates - Pandemic Edition - 5th Apr 20
Visa Denials: How to avoid it and what to do if your Visa is denied? - 5th Apr 20 - Uday Tank
WARNING PAYPAL Making a Grab for US $1200 Stimulus Payments - 4th Apr 20
US COVID-19 Death Toll Higher Than China’s Now. Will Gold Rally? - 4th Apr 20
Concerned That Asia Could Blow A Hole In Future Economic Recovery - 4th Apr 20
Bracing for Europe’s Coronavirus Contractionand Debt Crisis - 4th Apr 20
Stocks: When Grass Looks Greener on the Other Side of the ... Pond - 3rd Apr 20
How the C-Factor Could Decimate 2020 Global Gold and Silver Production - 3rd Apr 20
US Between Scylla and Charybdis Covid-19 - 3rd Apr 20
Covid19 What's Your Risk of Death Analysis by Age, Gender, Comorbidities and BMI - 3rd Apr 20
US Coronavirus Infections & Deaths Trend Trajectory - How Bad Will it Get? - 2nd Apr 20
Silver Looks Bearish Short to Medium Term - 2nd Apr 20
Mickey Fulp: 'Never Let a Good Crisis Go to Waste' - 2nd Apr 20
Stock Market Selloff Structure Explained – Fibonacci On Deck - 2nd Apr 20
COVID-19 FINANCIAL LOCKDOWN: Can PAYPAL Be Trusted to Handle US $1200 Stimulus Payments? - 2nd Apr 20
Day in the Life of Coronavirus LOCKDOWN - Sheffield, UK - 2nd Apr 20
UK Coronavirus Infections and Deaths Trend Trajectory - Deviation Against Forecast - 1st Apr 20
Huge Unemployment Is Coming. Will It Push Gold Prices Up? - 1st Apr 20
Gold Powerful 2008 Lessons That Apply Today - 1st Apr 20
US Coronavirus Infections and Deaths Projections Trend Forecast - Video - 1st Apr 20
From Global Virus Acceleration to Global Debt Explosion - 1st Apr 20
UK Supermarkets Coronavirus Panic Buying Before Lock Down - Tesco Empty Shelves - 1st Apr 20
Gold From a Failed Breakout to a Failed Breakdown - 1st Apr 20
P FOR PANDEMIC - 1st Apr 20
The Past Stock Market Week Was More Important Than You May Understand - 31st Mar 20
Coronavirus - No, You Do Not Hear the Fat Lady Warming Up - 31st Mar 20
Life, Religions, Business, Globalization & Information Technology In The Post-Corona Pandemics Age - 31st Mar 20
Three Charts Every Stock Market Trader and Investor Must See - 31st Mar 20
Coronavirus Stocks Bear Market Trend Forecast - Video - 31st Mar 20
Coronavirus Dow Stocks Bear Market Into End April 2020 Trend Forecast - 31st Mar 20
Is it better to have a loan or credit card debt when applying for a mortgage? - 31st Mar 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

Gold's Track Record

Commodities / Gold and Silver 2011 Mar 17, 2011 - 11:39 AM GMT

By: Douglas_French

Commodities

Best Financial Markets Analysis ArticleAnyone who has bought gold for the entirety of this bull market is always looking for signs of a top. Not to sell — one doesn't get rid of their insurance — but just to wait until the insurance goes on sale.

A price steadily holding over $1,400 per ounce (until the Japanese quake) has put gold on the cover of a few magazines, along with constant hawking of the yellow metal on daytime Fox News.


But there seems to be more talk about owning gold than the actual owning of it. Chris Blasi's work indicates that precious metals only made up 2 percent of investment assets at the end of last year after a decade-long bull market. At the same time, investment in real estate has remained constant despite the huge downdraft in property prices, meaning that investors continue to pile into this overbuilt sector.

In its "Wealth Adviser" section, The Wall Street Journal recently featured a striking above-the-fold, half-page image of gold bars stacked in a pyramid, with short gold facts etched on the ends of the bars — tidbits like "Site of world's largest accumulation of gold: New York Fed," and "Value of 2010 world gold sales: $150 billion."

Being editor of the "Wealth Adviser" section, Lawrence Rout enlisted the services of a couple financial experts to debate "The Case For and Against Gold." This is the sort of splashy attention that normally gives gold bulls pause. Editor Rout explains that the combatants were to defend every argument and that "they offer a deep dive for any investors thinking about taking the plunge themselves."

However, the debate was anything but a backyard brawl. Certified financial planner Janet Briaud carried the baton for the buy-side argument, making the usual tired points about crisis investing, uncertain times, and "black-swan" events.

Her insight that "we could very well see deliberate weakening of currencies in many developed countries" is not exactly a news flash. And then she goes on to contemplate gold as a reserve currency with central banks buying the metal, which is already happening. Ms. Briaud does make the point that gold has been recognized to have value for thousands of years by various cultures and that while investment in GLD (the gold exchange traded fund) has gown mightily, it makes up a infinitesimal percentage of financial assets held by households and nonfinancial businesses.

So, how much gold as a percentage of one's portfolio does CFP Briaud think the responsible investor should have? Five to 10 percent.

Five percent is the same allocation that Lew Altfest recommends for investors to hold provided "they promise to hold it rain or shine" (Altfest's emphasis). Mr. Altfest, enlisted to argue against owning the yellow metal, has his own wealth management firm and is a finance professor at Pace University.

"Whether you're negotiating with an uneducated thug guarding a border that must be crossed in the middle of nowhere, or sitting across the table from the most sophisticated investor in the world, gold is the universal language and has been for eons."

Gold has no use other than being pretty, the Pace professor says. It's not a real investment like stocks, bonds, real estate, or private businesses. If the world were falling apart, maybe it would make sense to own some gold he says, but, writes the money maven,

Economies are generally improving world-wide, and inflation, while of some difficulty in a few countries, is not currently a problem in the biggest one, the U.S., nor should it become a really serious problem in the future. No need to call in the gold troops here.

Later on in his gold attack, the professor throws out this laugher: "I don't believe any major nations will seriously pursue a consistent decline of their currencies over an extended period of time." What does he suppose these nations have been doing already? Remember, Mr. Altfest manages money for a living in one of the world's financial capitals and teaches students about finance.

He then questions the ethics of gold mining (at the WSJ's suggestion, I assume, since Ms. Briaud also mentioned ethics). The benefits are few, he writes and, "Very little of the production takes place in the U.S. or is owned by U.S. companies, and this doesn't help our unemployment problem." Since when is the question of whether an investment helps or hurts US employment a valid consideration in portfolio management?

Mr. Altfest must exclude any foreign companies from investment consideration. And, while there is no mining going on in Manhattan (other than money from investors' pockets), plenty of people in Nevada and Alaska make a good living working in the gold-mining industry.

The yellow metal is often mentioned as the commodity to trade with for one's freedom. When asked what he thought about gold as an investment, financial talking head Ron Insana snidely told talk-show host Laura Ingraham, "Sure, everybody should keep some gold on hand to bribe border guards." Insana wasn't intentionally making the best case to own gold. But what's more valuable than something that is, and has been for centuries, universally recognized for its value? When your life depends on making a trade, gold is what you trade with. "It is the last refuge of the desperate," writes value investor Jeremy Grantham, who says he hates gold.

Mr. Altfest doesn't get it, and neither does Ms. Briaud for that matter. Whether you're negotiating with an uneducated thug guarding a border that must be crossed in the middle of nowhere, or sitting across the table from the most sophisticated investor in the world, gold is the universal language and has been for eons. Sure, gold does nothing but sit pretty, failing to generate earnings or pay dividends. But it's portable, durable, and divisible, with a highly recognizable value; it's highly marketable and homogeneous, and its supply is stable: the perfect money.

The WSJ feature provides a wonderful timeline. In 4600 BC, civilizations began using gold as jewelry. Squares of gold were used as money in China in 1091 BC. The first gold coins were minted in what is now Turkey in 560 BC. And so on. That's a track record.

Concluding his case against gold, Altfest writes that if he "were a border guard today who received a 'gift' of gold, I would cash it in and buy stocks." There may be a day when the professor/money manager needs to buy his way out of New York. I hope he seriously doesn't think he can get the job done by slipping a stock certificate to the border guard.

Douglas French is president of the Mises Institute and author of Early Speculative Bubbles & Increases in the Money Supply. He received his masters degree in economics from the University of Nevada, Las Vegas, under Murray Rothbard with Professor Hans-Hermann Hoppe serving on his thesis committee. See his tribute to Murray Rothbard. Send him mail. See Doug French's article archives. Comment on the blog.

© 2011 Copyright Ludwig von Mises - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 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