Gold's Last Hurrah?
Gold is going to suffer a serious correction in dollar terms. Greater than the one that occurred last fall, as this positive sentiment must be wound out. Dare I call these new highs in gold "malinvestment" as I would real estate? I certainly will, though even I cringe as I type the word. Malinvestment has to do with expectation and intent - those buying gold now have the same expectations of gold they did of real estate in 2006, that it will continue to go up.
The US dollar is possibly the most hated piece of paper in investor terms on earth today (leaving aside notable exceptions such as Zimbabwe's dollar et al hyperinflationist currencies). Gold is the most loved metal. That is why we fly the contrarian flag today. The deflationist flag.
Clearly this guy doesn't like gold. Right? Au contraire!
But we will be watching our dear metals. I am no gold-bull, but a gold-bug. And when gold really IS the best store of value you can bet the farm that I will be a buyer. Today, though, it is not - too many speculators have sucked the value out of it. Once they are gone my bull-flag will be back up, and up long-term.
I'm a long-term stagflationist but there are just WAY too many people on the precious metal band wagon these days. I've said this time and time again. The price of toilet paper is NOT confirming the price of gold's exponential move higher, any more than the price of toilet paper confirmed the price of real estate's exponential move higher.
That said, the higher the price of gold goes, the more I want to own toilet paper. Why is toilet paper so much safer? It has not quadrupled in price in the last decade. There is no long line of speculators betting on its never ending rise. There is no ETF allowing heavily leveraged bets on its future price. If there's one thing that this new economy should have taught all investors, it is that heavily leveraged bets are things that must be avoided in order to protect one's nest egg. That is especially true once an investment reaches the "sure thing" level.
Deep down, gold bugs know this is true. True gold bugs simply want to own the metal itself and tuck it away for the future. They don't borrow money to buy it. They don't try to leverage up their bets to eek out exponentially higher returns. I very much admire that long-term thinking and this makes what I write especially difficult. In fact, if I thought the market consisted only of gold bugs, I'd still own it even at these prices. Seriously.
Toilet paper bugs and gold bugs are two peas in a pod. There is one key difference though. The only people investing in physical toilet paper are toilet paper bugs. I'm one and financially speaking, I'm very lonely in the investment. The lonelier I am, the safer I feel. My best investments were always made in isolation. That's how it has always been for me. I can still remember what it was like buying gold for the first time in 2004. I was not at all confident that I was doing the right thing. It was a very lonely feeling. The place I bought it from actually tried to talk me out of it. Gold was at the upper end of the trading channel and most felt it was due for a correction. I bought anyway. I believed in the long-term story.
Gold bugs these days are not lonely though. They are sharing their investment with waves of momentum traders. I have absolutely no desire to join them at these prices.
And lastly, from what I see there seems to be three main types of commercials on late night TV these days. This should be a wake-up call.
1. Natural Male Enhancement
2. Debt Consolidation
No-money-down real estate is still coming in at #4, for what that is worth.