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This
is a well-stated article from Simon Black on the bubble status of gold. Too
many gold advocates salivate at the thought of $2,000 or even $5,000 gold
through money printing and hyperinflation. On the contrary, the real value of
gold is not measured in dollars, but in relation to the other asset classes
in which one might invest his dollar. Such is the reason that gold was a
terrible investment in the 80s and 90s - it depreciated against all asset classes, as
well as all the market indeces, even though it remained largely flat against
the dollar. While gold in dollar terms has appreciated this decade, its most
significant rise can be measured against other assets. As the market turns
inflationary or deflationary, the true test of gold will be measured in how
many "things" can be purchased per ounce.
By
Simon Black, SovereignMan.com
I was
laying in bed sick recently watching Conan the Barbarian... yes I admit it.
Some people eat chicken soup, I drown myself in cheesy Hollywood violence.
If you haven't see it, you're not missing much of a plot-- Arnold
Schwarzenegger at his physical prime wields a big sword and searches for
treasure to plunder.
As I watched the Governator decapitate his foes two at a time, I couldn't
help wondering if this was the image that Nouriel Roubini had in mind when he
called gold a "barbarous relic" in the highly publicized
tit-for-tat argument he was having with Jim Rogers...
In blasting gold and gold bugs alike, Roubini indicated that gold is a new
bubble waiting to burst, and that the idea of $2,000 gold is merely
speculative fantasy.
To be clear, I am not a gold bug... but I've found Roubini's comments to be
off-the-mark. How can there be a gold bubble without widespread gold mania?
Wait until the shoeshine boy is having conversations with his customers about
Eagles and Maple Leafs... that'll be a clear sign of mania.
With all the 'Cash for Gold' locations I've seen sprouting up all around the
world, we may be in the very early stages of developing this mania, but for
now, the vast majority of people still don't own a single ounce.
The chief problem with gold is that there is no reasonable way to value the metal,
so it will be impossible to quantify when the metal finally has reached
bubble phase.
Sure, there are a plethora of technical indicators and moving averages to
consider, as well as a comparison between the market value and its production
costs... but there is no clear means to define a clear price for gold.
As an example, you can value the balance sheet of a company against very
clear, quantifiable assets-- cash on the books or dividend yield for
example-- and determine if the company is undervalued or overvalued.
There is no similar approach for gold... and this makes direct pricing
predictions the stuff of wizardry and good headlines.
My suggestion is that, if you want to speculate in gold, it's probably better
to buy shares of gold mining companies instead, which have audited assets and
earnings to evaluate.
I view physical gold, on the other hand, much more like a form of cash
instead of a speculation... a form of cash that is totally private,
uncontrolled by any central bank, and to be used in emergencies only.
To give you an example, I have a euro bank account. I don't watch the
euro spot price all day, buying/selling the currency based on its
fluctuations against the dollar and constantly recalculating the accounts
value in dollar terms.
Rather, I only care that the bank holds on to my euros and that I can access
the funds to buy things priced in euro. If I have 100,000 euro in the
account, I look at it as 100,000 euro, not whatever value it has in dollars
at the moment.
I look at gold in the same way. I accumulate gold as money, and I even travel
with a bit of it just in case I wake up one morning and find that the global
financial system has completely collapsed.
(when you travel as much as I do, this is the best insurance policy, along
with a second passport...)
The other benefit to me is that there are no reporting requirements, and no
unpaid government spies that snoop over what I'm doing with my ounces. This
form of financial privacy is definitely worth considering.
In terms of market value, though, I do not pay much attention to the
fluctuations of the gold price in dollar terms, up or down.
I will not cheer if it hits $1,500, nor will I cringe if it drops below
$1,000. Just like my other foreign currency holdings, the value of my gold in
dollar terms has little significance... besides, obsessing too much about its
dollar value defeats the purpose of accumulating gold to begin with: having a
private alternative to the dollar.
Tomorrow I'm going to talk about a unique way to buy gold, write-off the
storage costs, and hold it overseas in a tax-deferred or tax-free vehicle.
Tarek Saab
Guardian
Commodities
Tarek
Saab is the President of Guardian Commodities and a
former finalist on NBC's "The Apprentice" with Donald Trump. He is
an international speaker and syndicated author.
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