Over the last few years gold has gone up a lot in price due to several reasons. Collectively we know a lot more about gold than we did ten years ago and are collectively much more interested in owning it one way or another than we used to be.
The article itself was somewhat generic tilting toward owning gold as being a good idea based on what appears to be a visible path toward loss of purchasing power of the greenback at some point.
Unfortunately there was very little heed given to the risk of initiating a position in something that is up a ton already.I have been very consistent in talking about owning gold as a little bit of insurance against an external shock and if it is going up for other reasons that is ok but I expect that if gold is doing well it probably means most other things are not. That sentiment is certainly true over the course of this decade even if not true for the last six months.
Now gold is at an all time high and concerns about the dollar could contribute to pushing the price higher or not. It seems like the price will go up but that is usually the case when something has already gone up a lot. With gold up here it is very likely that there will be a lot of articles in mainstream publications like the one linked to above that go heavy on the virtues and light on the risks.
Gold may go up a lot more or not but it makes sense to be skeptical if, as it keeps going up more and more people hop on the bandwagon. Obviously this could apply to any sort of tradeable, investable asset and while this line of thinking is not new it is worth repeating every so often.
Gold iPod! I'd hate to put that one through the wash.
8 comments:
If the fed and other central banks want to inflate asset prices I would not get in their way. Asset prices are going higher.
Personally I like vwo better than gld, but I am sure holders of both are very happy. Heck the S&P is up over 20%
Roger,
this morning I was looking up when would gold go up - the answer. In late contraction and late expansion. So we are in a late something. Maybe RW can shed some light.
Best,
Jeff from Milan, Italy
If I pedal gold, and I say to you: "give me your worthless dollars in exchange for my precious gold"; you might want to ask me: "why are you doing this?" "Why don't you just hoard your precious gold?"
Something to think about the next time you're watching a gold "info-mercial".
We must be getting close to the magazine cover indicator that someone mentioned recently.
It's funny how gold inflames people's passions. As anon 8:35 points out, other investment options have moved as much or more, but gold really has folks hot and bothered. Can the word bubble be far behind?
Doesn't just follow the trend, make sense. Set a trailing stop, 7%or whatever on a closing weekly basis.
I think I just heard Ben Bernanke say that the Fed is working on models to track the fair value of different asset classes, but that it's not obvious to him that any are currently over-valued. I'd imagine it's darned near impossible to determine the fair value of gold, but I guess he's not overly worried right now.
If everyone were really buying gold, there wouldn't be enough of the shiny metal to go around, and the price would be even higher.
But mostly, traders are buying ETFs like GLD. It's becoming increasingly clear that the ETF shares are not completely backed by bullion 1-for-1 as implied (never guaranteed) by the prospectus (but with lots of fine print).
This is what leverage looks like, isn't it? If the market reverses and traders want to cash in their shares, the deflation will be bloody. But if, instead, it suddenly becomes generally understood that these shares are not fully backed by bullion, there could be a crisis of confidence in SPDR, leading to a replay of the Lehman crisis. Am I being too imaginative here?
Stupid me I thought gld was backed by gold 1 for 1. I think if this ever becomes an issue it could tarnish there etf brand big time, but I am not sure speculators in gold would bring it down even if we saw a hell of a sell off across the board.
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