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Gold’s London AM fix this morning
was USD 1,715.50, EUR 1,295.21, and GBP 1,084.25 per ounce.
Yesterday's AM fix was USD 1,733.00, EUR
1,304.77, and GBP 1,094.20 per ounce.
The pattern of gold trading higher in
Asia and falling just before or at the open in Europe continued again today.
Gold ticked a little higher in Asian trade prior to sharp falls before the
open at 0800 GMT when gold fell quickly fell from $1,729/oz
to $1,715/oz.
A cut in COMEX gold trading margins by
the biggest operator of U.S. futures exchanges, the CME Group, failed to
start a rally in gold but is short term bullish.
The tragedy that is the Greek debt crisis
continues. Although Greek political leaders inked a form of deal in the 9th
hour, the bailout is still pending approval of international lenders, leading
to jitters amongst investors which should support gold.
European ministers declared that Athens
did not meet all targets and demanded more within a week in exchange for a
130 euro billion “bail out” to stave off bankruptcy – at least
in the short term.
The Troika gave the debt ridden country
yet another ‘deadline’ - until the middle of next week to find an
extra €325 million in savings, and pass
the cuts through a divided parliament. They will also seek “written
guarantees” that brutal austerity measures will be implemented even
after the elections of a new government in April, said Jean-Claude Juncker, the Luxembourg prime minister who chaired
yesterday’s meeting of finance chiefs of the 17 euro countries.
US International trade numbers hit the
market at 13.30 GMT.
Buffett: "Right To Be Fearful"
of "Paper Money" - Favours Stocks Over
Cash, Bonds and Gold
Warren Buffett, the billionaire chairman
of Berkshire Hathaway, has released an interesting, if contradictory,
adaptation from his upcoming shareholder letter - Warren Buffett: Why stocks beat gold and bonds .
In it, Buffett again extols the virtues
of stocks over paper money, bonds and gold.
The Oracle of Omaha acknowledges and
correctly warns that investors are "right to be fearful" of
"paper money." Buffett said low interest rates and inflation should
dissuade investors from buying bonds and cash. "They are among the most
dangerous of assets."
Buffett again reaffirmed his opinion
about gold’s “significant shortcomings.” He said that gold
is “neither of much use nor procreative.” He also suggested that
gold was a bubble and compared it to the internet stock and housing bubbles.
Buffett Incorrect Regarding Gold
Buffett’s thoughts regarding gold
are a rehash of similar negative views on gold repeated in recent years.
Buffett criticises
gold for having two shortcomings – it is “neither of much use nor
procreative”.
This is true,
however Buffett completely ignores gold’s primary use throughout
history and today which is as finite money, a monetary safe haven asset, as
financial insurance and as a store of value.
Buffett contradicts himself by suggesting
that those who buy gold are fearful and they believe “that the ranks of
the fearful will grow.”
However, in the same article, he says
that investors are “right to be fearful” of “paper
money.”
Buffett should have a chat with James
Grant or other monetary authorities who realise
gold is the ultimate form of cash. As Grant says
"nothing beats a little cash in a bear market, of course, and the oldest
form of cash is gold."
Buffett suggests that gold is a bubble
and that the rising price has on its own generated additional buying
enthusiasm, attracting purchasers who see the rise as validating an
investment thesis. He writes that as "bandwagon" investors
join any party, they create their own truth -- for a while.
His article also shows a lack of
knowledge regarding gold - Buffett says that gold is “currently a huge favourite of investors.”
The data and statistical evidence shows
that gold remains a fringe investment and remains under owned by retail
investors in the western world. This is beginning to change and ownership has
increased in recent years but ownership remains miniscule when looked at in
historical context and when viewed versus ownership of stocks, bonds and cash
today.
Buffett compares gold to the internet
stock and housing bubbles.
This is a highly simplistic and dubious
comparison. The very uncertain world of 2012, with a myriad of significant
investment risks is leading to continuing strong fundamental demand for gold
bullion amid constrained global supply.
These real fundamentals driving today’s
gold market were absent in the final years of the dotcom and property
bubbles.
The fundamentals driving the gold market
are not going to disappear in the foreseeable future and may be with us for
the rest of this decade.
Also, gold so massively underperformed in
the 1980s and 1990s (after huge outperformance in the 1970s and a parabolic
price move in late 1979, January 1980) that gold has in effect been playing
“catch up” with other assets in recent years.
The charts and tables show that
gold’s performance, since the start of Buffett’s Berkshire
Hathaway, has been equivalent to that of stocks (MSCI World and S&P 500)
and with similar volatility.
Berkshire’s Hathaway’s
performance has been phenomenal and must be respected, however
Buffett’s over concentration and allocation on stocks since 2000 has
cost him and his shareholders dearly – and may do so again in the
coming years.
Conclusion
Buffett shows once again he does not
understand gold and he does not understand real diversification. He does not
or chooses not to understand gold as a safe haven asset in a portfolio.
He does not or chooses not to understand
gold as an important diversification. He does not or chooses not to
understand gold as a finite currency, as a monetary asset and as money.
"What the wise man does in the
beginning, the fool does in the end."
Buffett is correct when he says that the
old proverb will be confirmed once again.
However, today wise men, women and
institutions in the US, Europe, Asia and internationally are diversifying
into gold because of concerns about “paper money” and other
macroeconomic, geopolitical and systemic concerns.
The less informed continue to have a
blinkered anti gold bias. They continue to focus solely on gold’s
nominal price and assert it is a bubble.
They continue to posit silly
“either or”, “stocks good; gold bad” arguments rather
than seeing the merits of each asset class.
The uninformed continue to not understand
gold as a form of financial insurance in a diversified portfolio. This is
changing slowly with a very gradual growing appreciation of gold’s
importance as a safe haven asset and money is a world of massive paper and
digital money creation.
Putting all your eggs in any one basket
in a world beset with risk is unwise. Whether that be
in agricultural land, Exxon Mobil, Berkshire Hathaway, stocks, bonds, cash
and even gold.
For breaking news and commentary on
financial markets and gold, follow us on Twitter.
NEWS
Reuters
Gold stalls after Greece deal, CME margin cut
MarketWatch
Gold higher on Greek deal, central-bank easing
Reuters
India gold demand returns as prices ease
Reuters
Iran Buying Indian Wheat With Gold
COMMENTARY
CNN
Warren Buffett: Why stocks beat gold and bonds
Wall Street Journal
First Roubini, Then Fink, Now
Buffett Push Stocks
MarketWatch
The Bernanke gold trading strategy
Economic Policy Journal
The Weisenthal Theory on Why
Older Men Worry about Inflation
24HGold
Common Misconceptions About Gold
Silverseek
Silver: Enough is Enough
24HGold
Gold Cars And Gas Stations
ZeroHedge
Infographic: Presenting A World Covered In (Hundred Dollar Bill)
Debt
Mark
O’Byrne
Goldcore
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