How Investors Get Suckered Time After Time
by ilene - September 16th, 2010 1:04 pm
Dr. Paul viewed David Rosenberg’s chart picked up by Clusterstock as the "chart of the day" yesterday (posted here, with comments by Edward Harrison) and Paul concluded that this is not a good time to start buying gold. Obviously, with the rise in gold prices over the last decade, there was a great decade-long trade opportunity. But prices go up and down, and past performance does not dictate future results. - Ilene
How Investors Get Suckered Time After Time
Courtesy of Dr. Paul Price at Beating Buffett
The following chart was published on Clusterstock yesterday with commentary explaining how this proved that stocks were no longer a good place to invest…
As the S&P 500 was the only major asset class to have shown negative results over the past 10-years, they felt it was obvious that Gold, Long-term Bonds and Commodities would continue to be the best place for the next decade. In other wordsthe conclusion was that new money should be allocated to whatever had just finished going up the most!
I hear ads for gold every day shouting that, “I invested in gold 10 years ago and it’s the best decision I ever made.” “Gold has tripled since 2000. Get in now for the move to $3000 /oz.”
How many times have you made great profits buying something that just finished tripling? How did your real estate purchase in 2006 work out using that reasoning?
The same ‘Gold Bug’ ads were running in 1979 – 1980 sucking people in right at the top as Gold briefly broke through $800 /oz. for the first time. The second chart shows the disastrous results for those who took the bait.
See the longer-term chart below to learn that it took about 30 years for Gold to regain its 1980 highs (without adjusting for inflation). Even at this week’s new all-time nominal high Gold is still well below the old peak. So much for Gold as an inflation hedge.
I look at the first chart presented and draw the opposite conclusion from the Clusterstock article. If stocks suffered through 10 years of negative returns they might be quite cheap considering all the revenue, earnings and book value growth that took place.
I’d be avoiding bonds and…
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THERE IS A HIGH PROBABILITY OF AN IRRATIONAL BUBBLE IN GOLD
by ilene - June 10th, 2010 2:46 pm
THERE IS A HIGH PROBABILITY OF AN IRRATIONAL BUBBLE IN GOLD
Courtesy of The Pragmatic Capitalist
Ben Bernanke is confused. And no, it’s not just the monetary system that continues to confound him. This time it’s gold prices. During yesterday’s Congressional testimony Bernanke was asked about the surging price of gold and if that is a sign of no confidence in fiat currencies. He responded:
“Well the signal that gold is sending is in some ways very different from what other asset prices are sending. For example, the spread between nominal and inflation index bonds remains quite low – suggesting just 2% inflation over the next 10 years. Other commodity prices have fallen recently quite severely including oil prices and food prices. So gold is out there doing something different from the rest of the commodity group. I don’t fully understand the movements in the gold price, but I do think there’s a great deal of uncertainty and anxiety in financial markets right now and some people believe that holding gold will be a hedge against the fact that they view many other investments as being risky and hard to predict at this point.”
Mr. Bernanke is no dummy. I know I am a bit hard on him at times, but that is only because he is supposedly the Michael Jordan of the financial system so expectations are high. Unfortunately, he has performed more like Luc Longley (no offense to the superb Aussie readers here). Nonetheless, Mr. Bernanke understands that inflation pressures remain very low (even though he has failed to apply or promote the proper solution to our current balance sheet recession). Aside from gold prices there are no signs of inflation in the economy. But I believe gold prices are moving higher due to the public’s opposition to fiat currency, fiscal stimulus and what is generally viewed as continued “money printing”. This is highly irrational in the long-term in my opinion and creates the potential for gold to turn into a bubble is looking increasingly high.
Gold prices have surged this year as the Euro crisis has created increasing concerns over the viability of fiat money. I have previously discussed the great irony here. Gold is viewed as a hedge against the potential collapse of paper currencies . It is seen as the ultimate safe haven currency. The Euro…
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Santelli talks about gold price suppression
by ilene - November 26th, 2009 3:42 pm
Santelli talks about gold price suppression
Courtesy of Tim Iacono at The Mess That Greenspan Made
Skip to about the 7:45 mark to hear Rick Santelli say, "Central banks have to be petrified about gold going to $2,000! Didn’t Larry Summers write a paper saying that central banks have to keep a lid on the price of gold for obvious reasons?"
It keeps getting more and more interesting with nary a hint of the gold price faltering.
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No One is Buying Real Gold, They’re Just Betting On Higher Gold Prices
by ilene - November 21st, 2009 2:42 pm
Sound familiar? (Hint: Goldman’s Global Oil Scam Passes the 50 Madoff Mark!, and Oil Manipulation Info.) – Ilene
No One is Buying Real Gold, They’re Just Betting On Higher Gold Prices
Courtesy of Joshua M Brown, The Reformed Broker
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Mainstreet USA
This is a remarkable story. I am not calling for either higher or lower gold prices as this is a forecast-free blog. I will say that depending on how you interpret the facts, your outlook, bullish or bearish, may change.
The LA Times offers us an interesting look at the divergence between the activity of gold speculators and that of the buyers of real gold, be it coins or jewelry. The data is based on the third quarter 2009 versus Q3 ‘08…
From the LA Times:
Data from the World Gold Council show that the surge in the metal’s price to record highs ($1,146.40 an ounce as of Friday) hasn’t been accompanied by record purchases of the real thing.
The council’s report put total global purchases of gold in the quarter that ended Sept. 30 at 800.3 metric tons, down 34% from the 1,205.6 tons bought in the third quarter of 2008.
Buying was down in the third quarter versus a year earlier in every major category of gold consumption, including jewelry (the biggest single source of demand), industrial use, coins and purchases by exchange-traded funds.
Now this can be a price-demand issue, higher prices for the raw material keeping buyers away at the retail level…
Gold bought as jewelry, for example, reached 673.3 tons in the third quarter of 2008, when gold’s price was mostly below $900 an ounce. In the third quarter of this year, with the price mostly above $900 and on its way to $1,009 by the quarter’s end, the amount of the metal bought as jewelry totaled 473.5 tons, down 30%.
Surprisingly, while the US Mint is continuing to produce, some major mints around the world are holding back:
Interestingly, the Austrian government mint is betting otherwise, at least in the near term: The mint, the world’s biggest producer of gold coins, recently said it planned to cut output by 32% in 2010, figuring that an improving global financial system will slash gold demand from investors.
An analyst from Kitco Metals is calling the rally in gold entirely speculative…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW.