Tuesday, August 25, 2015

Score One for the Rational Gold Bugs

August 24, 2015
Looking for a safe haven? Here's why gold won't work

According to statistics going back to 2005, a bet on gold in times of market turbulence is often no better than a coin toss.

Assuming gold bugs stick to rational arguments then I'm going to give them the counterargument victory in this CNBC debate.

Example Rational Arguments

1. Since 2005? Wow. We're really backtesting the bejesus out of this theory. Aren't we? You'd think there would be more long-term big picture data for an investment like gold that has existed since the creation of dirt.
2. According to Kitco, gold averaged $444.74 in 2005. For those who foresaw the housing bubble popping in all its grandeur, has gold met their long-term safe haven needs so far?
3. Does a "bet on gold in times of market turbulence" seem like a good bet? Isn't that a bit like trying to buy fire insurance while your house is burning? Good luck getting a good price!

Example Irrational Arguments

1. Gold is money. I know it is money because I always pay my credit card bills by sending gold coins in the mail. Money is always a safe haven.
2. Gold is not a commodity, even though Gold has every property of a commodity. Unlike commodities, Gold is not prone to bubbles and Gold is therefore always a safe haven. Note that I capitalized Gold repeatedly so that you would know that Gold is extra safe heavenly. Amen.
3. The dollar is going to zero, so gold is always a bargain at any price, just like stocks and real estate.

Disclosure: Bought a great deal of gold in late 2004 as a safe haven inflation hedge. Sold all that gold as a risk asset in early 2006. It had appreciated 50% and I wanted off the crazy parabola. Hindsight says I could have waited longer, of course. I think most would agree that buying cheap low lying fruit and selling too soon beats the heck out of buying expensive high flying fruit and selling too late though, if the past week's stock market is any indicator.

Just opinions. As I write this, $1,149.30, markup, and some opinions will buy you an ounce of safe haven and/or risk asset. Your call. Opinions are always optional.

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