precious metals - What We're Reading - StockBuz2024-03-28T20:35:11Zhttp://stockbuz.ning.com/articles/feed/tag/precious+metalsGold Bulls Take Carehttp://stockbuz.ning.com/articles/gold-bulls-take-care2014-07-19T23:53:30.000Z2014-07-19T23:53:30.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1290793?profile=original"><img class="align-left" src="http://storage.ning.com/topology/rest/1.0/file/get/1290793?profile=original" width="271"></a>I can’t tell you that gold is a bad investment. Even after the recent plunge, if you bought gold in 2004, your investment would have <a href="http://goldprice.org/spot-gold.html" title="" rel="external">earned</a> you an annualized rate of about 10.4 percent, after accounting for inflation. That is darned impressive. If you bought in 1994, it would have earned about 3.9 percent per year -- not too shabby. Even if you bought all the way back in 1984, you would have earned 1.8 percent in real terms. (Of course, this assumes that shadowstats.com is <a href="http://azizonomics.com/2013/06/01/the-trouble-with-shadowstats/" title="" rel="external">wrong</a>, and that inflation hasn’t been massively understated.)</p>
<p>In addition to delivering decent long-term returns, gold has been a way to spread or offset investment risk. As my co-blogger Yichuan Wang <a href="http://noahpinionblog.blogspot.jp/2013/08/what-determines-return-on-gold.html" title="" rel="external">showed</a> last year, gold’s return is somewhat negatively correlated with interest rates, so that a bet on gold is to some degree a bet on lower rates. This is actually the prediction of some old economic <a href="http://krugman.blogs.nytimes.com/2011/09/06/treasuries-tips-and-gold-wonkish/?_php=true&_type=blogs&_r=0" title="" rel="external">models</a>, which also indicate that gold should have a positive rate of return over the long term. But a lot of the variance in the price of gold isn't explained by such factors, meaning that some small amount of gold is a valuable addition to any well-diversified portfolio.</p>
<p>But there are two big words of caution with respect to gold. The first is that you shouldn’t believe the standard story for why gold will go up. The second is that you should be very wary of websites and media outlets that constantly push you to buy gold.</p>
<p>The standard story for why you should buy gold is that it’s a hedge against the inherent weakness of the fiat money system. Unfortunately, it isn’t. For example, gold is a poor hedge against inflation. The correlation is <a href="http://www.ritholtz.com/blog/2012/09/gold-vs-inflation/" title="" rel="external">very weak</a>. Remember that gold had its huge bull run in the 2000s and a long slide in the '80s…but inflation was higher in the '80s than in the 2000s!</p>
<p>A more speculative and extreme version of the story is that the whole fiat money system is destined for collapse, and that after this happens we’ll go back to using gold as money. If that did happen, you’d want to own a lot of gold at that moment. Unfortunately, there are some big problems with this story, too. Technology has advanced to the point where we can use things like bitcoin instead of heavy, easy-to-steal physical commodities like gold. And if civilization collapsed to the point where we couldn’t even use computers anymore, I’d advise you to invest in guns, ammunition, seeds and antibiotics instead of gold.</p>
<p>A bigger problem with the gold story is the question of why you should expect it to earn a good <em>return</em>. For gold’s price to keep rising steadily due to the failure of the fiat money system, it has to be the case that more and more people will steadily realize that the story is true. So a bet on this gold story is a bet that your macro perspective is way, way ahead of the macro perspectives of most other investors. That’s a highly speculative, risky bet.</p>
<p>So you should beware of media outlets that constantly push this story on you. The most important such website is probably Zero Hedge. If you read Zero Hedge, you’ll see this story about gold and fiat money being promoted <a href="http://www.zerohedge.com/news/2014-06-30/gold-time-universal-deceit" title="" rel="external">again</a> and <a href="http://www.zerohedge.com/news/2012-12-28/friday-humor-top-ten-reasons-why-fiat-currency-superior-gold" title="" rel="external">again</a> and <a href="http://www.zerohedge.com/news/2014-07-11/planned-chaos-why-fiat-money-large-scale-fraud-system" title="" rel="external">again</a>, often mixed with a healthy dose of political <a href="http://www.zerohedge.com/news/2012-11-21/guest-post-statist-thugs-and-rocks-they-crawl-out-under" title="" rel="external">ideology</a> and references to “<a href="http://www.zerohedge.com/news/attacking-austrian-economics" title="" rel="external">Austrian economics</a>.”</p>
<p>If you actually take Zero Hedge’s constant gold-flogging to heart, you could lose a lot of money. Since gold hit a peak in 2011, it has lost about 33 percent of its value in real terms. Zero Hedge kept touting gold all the way down. For example, in November 2011, Zero Hedge ran <a href="http://www.zerohedge.com/news/gold-over-eur-1300-way-%E2%80%98infinity%E2%80%99-eurozone-contagion" title="" rel="external">an article</a> saying that gold could be “on its way to infinity.” In March 2012, Zero Hedge <a href="http://www.zerohedge.com/news/stay-long-gold" title="" rel="external">urged</a> its readers to “stay long gold.” An October 2012 <a href="http://www.zerohedge.com/news/2012-10-02/eric-sprott-do-western-central-banks-have-any-gold-left" title="" rel="external">article</a> made the same recommendation. As the price fell, Zero Hedge <a href="http://www.zerohedge.com/news/physical-silver-surges-record-30-premium-over-spot-backwardation" title="" rel="external">assured us</a> that the collapse was only in “paper” gold, not the physical commodity. Needless to say, if you took Zero Hedge’s advice at any of these points, you would have lost a lot of money.</p>
<p>Now, if the gold crash is only temporary, and someday gold heads toward infinity, then losing money on paper is no problem…unless, of course, you have to sell to cover retirement expenses or pay some medical bills.</p>
<p>A lot of finance people seem to treat macro stories, like the one Zero Hedge pushes, as entertainment rather than actionable information. That’s a healthy attitude. And it’s true that Zero Hedge occasionally does some excellent reporting, or publishes other <a href="http://www.zerohedge.com/news/2013-02-16/biases-biases-everywhere" title="" rel="external">good</a> information. So maybe you can read the site just for those tidbits, and either ignore or just smile indulgently at the huge volume of gold-flogging politics-tinged macro-propaganda that the site hurls at you day after day. But then you’re like one of those rare people who really does read Playboy magazine for the articles.</p>
<p>Zero Hedge is still <a href="http://www.zerohedge.com/news/2014-05-21/flooded-gold-smuggling-indias-new-cabinet-prepares-lift-gold-capital-controls" title="" rel="external">pushing</a> gold. It’s still <a href="http://www.zerohedge.com/news/2014-07-05/austrian-economics-vs-clueless-trolls" title="" rel="external">pushing</a> Austrian economics. But should you be listening? Only if you’re very good at separating bedtime stories from reality.</p>
<p>Courtesy of <a href="http://www.bloombergview.com/articles/2014-07-16/gold-dreamers-face-harsh-reality" target="_blank">BloombergView</a></p>
<p>Full disclosure I have been long SLV and GLD (<a href="http://stockbuz.net/articles/seasonal-demand-trades-june-2014?context=category-Seasonality" target="_self">recommended in early June</a>) however this was for seasonal demand purposes. A partial has already been taken and I remain longer term bearish on the shiny metal.</p></div>Gold: Sticking With Ithttp://stockbuz.ning.com/articles/gold-sticking-with-it2014-04-05T17:07:33.000Z2014-04-05T17:07:33.000ZStockBuzhttp://stockbuz.ning.com/members/1t2xbcvddkrir<div><p><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/1290529?profile=original"><img class="align-left" src="http://storage.ning.com/topology/rest/1.0/file/get/1290529?profile=RESIZE_480x480" width="375"></a>It may not be a popular view but then again, when everyone's on one side, doesn't the market tend to do the opposite of what's expected? It seems the Elliott Wavers of the blogisphere are calling for gold to head lower here but I stand by my call of last week that the low will hold and we'll see a head-and-shoulders bottom (right shoulder) forming here. Silver and all of the miners reflect a similar pattern, as posted here at StockBuz last week. The weekly even resembles a possible double bottom. Wouldn't that be sweet! At the very least, down side risk is defined (last weeks low) but with fear in the market and heavy selling continued after the first of the month, utilities (safe haven) are already hitting a new high and I believe flight to precious metals will continue as well. At least in the near term. Not a long/hold.</p></div>