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Wednesday, July 27, 2011

Gold Fallacies:

There are all number of morons who parade across your TV screen on FOX, CNBC, Bloomberg, and who write in the Wall Street Journal and the New York Times, armed with the most absurd misinformation about gold.

Almost all their blathering stems from a fundamental misunderstanding:

They still don't get that gold is a currency. So here's what they say:

A) Gold is a NON PRODUCTIVE ASSET. They would rather hold stocks. Or bonds (since bonds produce income through interest.

A) So is the Dollar a non productive asset. So is the Swiss France. Currencies don't produce anything. That's not why you hold them. You hold them because they are a STABLE store of wealth.

B) Over Time Gold performs worse than stocks or bonds.

B) NONSENSE. Over time EVERY STOCK goes to ZERO. Over Time EVERY GOVERNMENT DEFAULTS. That's why BONDS pay interest. Because they pay you for the RISK of holding them.

You don't hold an ASSET CLASS. You hold an individual asset within that class. Each Individual Asset is RISKY. During very stable periods - yes - individual risk assets pay off.


Do you think we are in a STABLE, or an UNSTABLE period?

C) Gold has a negative carry, over time it costs you money to hold gold.

C) Your house has a negative carry. It costs way more to keep up your house than to hold gold. Does that stop you from living in it?

(Yes, but over time your house appreciates. Not during unstable periods. Only Gold appreciates during very unstable periods.)

D) Gold has already had a huge move. It must be a bubble about to burst.

D) This is the dumbest argument of all. Gold has had a huge move relative to Paper Currencies. Are paper currencies about to get stronger? Really? With Hundreds of Trillion of dollars of Paper Debt in the system? With trillions of new debt being created every month? And with intractable narcissistic morons (dems, repubs, tea-partiers all) holding the reigns of government?

Gold has not had a huge move relative to other hard assets. Not compared to Diamonds. Not compared to High End Art. Not compared to other Precious Metals. Not compared to Grains. not compared to Oil. Not compared even to real estate after the crash when measured over the last twenty years.

The only argument against gold is this: Fiscal Sanity has been restored to the World Financial System by prudent sober management by the World's Governments and sober responsible behavior by the World's Citizens (especially the banks who control 60 percent of the financial assets). What are the odds of that happening?

Figure it out for yourself. then decide how much gold you should hold. And figure it in Ounces, not Dollar Amounts.

Here's the Lesson: Never substitute Regression to the Mean analysis for good hard analysis of the Current Situation. It's the idiot's substitution. And it will lose you all your money.

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