Perhaps no other substance in the world is more enigmatic, maligned and revered than gold.
Its disciples, and I do mean disciples, believe the yellow metal is the only legitimate store of value on the planet (with maybe the exception of silver).
These believers, gold bugs, are emphatic in a world where governments deficit spend into the stratosphere and central banks can simply keystroke money into existence, gold will eventually prevail as the one true form of money. The only thing needed for their investment to prevail is time; its ultimate future is assured.
The other side of the coin points out gold has never paid a dividend, never created a new technology, never grown its market share or opened a new market. As the famous Warren Buffet once opined, we dig gold out of the ground, shine it up, sell it and bury it underground somewhere else. Where’s the value in that?
After a 12-year bull market, gold has both corrected sharply since last September. After peaking at more than $1,900 an ounce during 2011, gold is now trading at about $1,250, which represents a serious bear market decline of 35 percent.
The steepness of the decline since last September has attracted a considerable level of attention, and I am receiving more questions about gold now than I have since the 2011 peak.
Is gold a good trade now? Is now a good time to add to long-term positions?
The answer to the first questions is I don’t know, and remain skeptical of anyone who says they do. As a truly global commodity gold prices react to a great multitude of factors, some of which may be manipulated. With no quantifiable supply and demand data and a market impacted by central bank actions, retail demand, investor speculation, and mining and production issues, attempting to trade gold is like shooting in the dark. Sure you can hit your target once in a while, but can you really tell me why when you do?
On the second question, my answer is only a bit more helpful: maybe. Twelve years is a long time for a bull market and the correction is bound to take some time to play out. As gold prices have declined it certainly seems logical for longer-term investors to add to positions. Does this mean prices won’t go lower? No, but longer term investors can accept some volatility.
My personal feeling on gold is that I own it. I’ll own it at $1,900 and I’ll own it at $800. I own it as a hedge, an asset which may right when all others go wrong. Like every other hedge, I hope I never need it. I hope those gold bugs never get the chance to say “I told you so”.