Contrarians beware: A long article on the rise of Gold as an investment asset class is on the front page of the NYT.

“Inflation, deflation, government borrowing or the plunging euro — you name it — the specter of these concerns has set off a dash to gold, driving the precious metal to new highs and illustrating how fears of economic turmoil have moved from the fringe to the mainstream.

And gold bugs, often dismissed as crackpots who hoard gold bars in the basement, are finally having their day…

The most visible new gold enthusiasts range from the Fox News commentator Glenn Beck on the right to the financier George Soros on the left, with even some sober-minded Wall Street types developing a case of gold fever. While their language may differ, they share a fundamental view that the age-old refuge of gold is relevant again, especially as other assets like stocks and national currencies show signs of weakness.”

The thinking behind such contrarian indicators (such as the magazine cover) is as follows: By the time any given investment trend reaches the critical mass required for a staid front page editor to become aware of it, it is very late in that cycle. Indeed, in order to be mroe than a merely quirky story, it has to have a broad enough appeal to be approved for the cover story.

I do not know whether a page one Sunday NYT article is the equivalent of a magazine cover. I will tag Paul McCrae Montgomery –  inventor of the magazine cover indicator — and inquire.

Regardless, I still found it interesting that Gold is now a page 1 NYT story .  . .

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Source:
Uncertainty Restores Glitter to an Old Refuge, Gold
NELSON D. SCHWARTZ
NYT, June 12, 2010

http://www.nytimes.com/2010/06/13/business/13gold.html

Category: Contrary Indicators, Gold & Precious Metals, Psychology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

57 Responses to “Uh-Oh: Gold on the Front Page of Sunday’s NYTimes…”

  1. Greg0658 says:

    its been an amazing 30 years of brain matter development .. not sure if that spike will happen again – but I do know it would help to not see that chart all over the place

  2. Marcus Aurelius says:

    Regardless of sentiment, gold hasn’t gone parabolic. Could be that it will fall to a substantially lower price, but, in light of the reasons for its current value, I doubt that it will crash before we’ve worked our way through this shit storm, if ever.

  3. JustinTheSkeptic says:

    It could get there in a hurry if the masses start buying. I remember about a year and a half back, where everyone on here was laughing at the idea of gold being anything but a pretty metal. It’s amazing how in the real world sometimes one has to kiss up!

  4. Bob_in_MA says:

    All these gold mines are expanding and their price of production is way below the current price.

    The peak may or may not repeat the 1980s real peak, but the fall will probably be just as steep, or steeper still.

  5. cswake says:

    I looked back at the NY Times articles during the last peak and they had a similar article in July 1979:
    http://select.nytimes.com/gst/abstract.html?res=F40A17F83F5A12728DDDAB0A94DF405B898BF1D3

    Gold was $300 when they wrote that. Six months later it was $850.

  6. Purewater says:

    Bob_in_MA: You have it backwards…gold supply from mines has been falling for years. Moreover, the industry’s margins have been contracting during the last couple of years because their energy and labor costs have been going up faster than the price of gold. If gold maintains/increase its current price their margins should start to expand this year but that hasn’t been the case recently.

    “On the supply side, gold mining production has been decreasing at a rate about 4 to 5 percent per year after reaching a peak production in 2001,” Jason Toussaint, managing director of exchange traded gold, said today. “Even if demand stays the same, prices must go up.”

    http://www.bloomberg.com/apps/news?pid=20601012&sid=aPmTV_Se5jJw

  7. franklin411 says:

    It looks like from the graph, you recently broke even if you bought gold at $300 in 1979. Not exactly an awesome return on the capital invested.

  8. franklin411:
    And who is going to invest in gold for thirty years?

  9. telling, that they’re not putting a DOW/Gold-chart in Print..

  10. d4winds says:

    I have wondered about this contrarian indicator wrt to gold over the last 2 months or so, thinking on the one hand that it has definitely applied generally if not literally (wrt mag covers) since no other investing vehicle has received nearly so much publicity, but that on the other hand, it doesn’t apply since gold is a Euro safe haven (though not a very large one, by contrast to, say, T-bills).

  11. franklin411 says:

    Goldbugs are freaks of nature, Calvin. Just look at the Goldline/Glenn Beck controversy. These are not rational investors:

    For all its newfound respectability, gold still manages to bring out the inner survivalist in its adherents. Gold bugs like Peter Schiff of the investment firm Euro Pacific Capital in Westport, Conn., envision a black market arising in the United States, with merchants refusing paper money and insisting on gold instead, while Mr. Hathaway, the gold fund manager, says the credit system has entered “the end game.”

    “People probably still think I’m nuts,” Mr. Hathaway said. “But I’m not talking to myself in an isolation chamber anymore. We’ve got company now.”

  12. HCSKnight says:

    All these long term, non-Log scale charts…. I LOVE them; one of the best indicators of bias and/or ignorance.

    What I’d like to see, but never seems to be shown, is a chart of gold, not adjusted for inflation, but relative to inflation. E.g. P/E – price relative to earnings. For all the quant passion on TheStreet, I find it interesting we never see one…

  13. Bob_in_MA says:

    cswake,

    Great find. I was looking at the graph and trying to find a similar period to now, where the price had risen steadily for a while (years), but not yet dramatically. I came up with 1st half of 1979.

    I’m thinking of buying some far out of the money calls, or call spreads on GLD for JAN 2011. If gold were to go to $1,700, you could make 20-to-1 if you timed it right. Might be fun to try a small bet…

  14. Bob_in_MA says:

    franklin411,

    Yeah, the doomsday scenario for gold is absurd. If we were in the world of Mad Max, who the hell wants something that is really, really heavy and has no practical use? A gallon of gas, or a bushel of fruit will each be worth a gold bar or two. ;-)

  15. TCire says:

    Coincidentally, weekend Financial Times has this piece – http://www.ft.com/cms/s/0/a55a0e62-7584-11df-86c4-00144feabdc0.html -about stress onthe world’s gold storage and transit infrastructure.

    Two swallows?

  16. Alaric says:

    Gold related to left/right politics? Absurd. The NY times is priceless. Beck flogs Goldline because it makes him money and Soros, well, I cannot for the life of me think that politics would get in the way of any investors views.

    Outside of the fact that the cost of mining gold has not decreased in this deflationary environment, that future gold supply is in more far flung and unstable places partially offset by a reduction in jewelry demand with price rises – is not the increase in the gold price simply a reflection of sovereign debt risk and the way governments may ultimately seek to reduce this risk through inflation?

    To the extent that the Euro-zone and the U.S. seek deflationary policies, gold will go down. European governments want to believe that austerity will work, but the central question, at least for now before there is a debt crisis in the U.S., is if their own populations believe them?

  17. Alaric says:

    Actually, G. Gordon Liddy flogs gold too, although on his commercials the U.S. debt figure is increasingly out of date. (for those who do not know who Mr. Liddy is, I salute you)

    I suppose when you see the sock puppet from Pets.com and latterly barnone.com flog gold then you know you are at the top…….recall that the sock puppet died with pets.com and was then reborn to push subprime loans right at the top!

  18. dcsos says:

    Lloyd wanted some pretty new golden baubles, so he pushed the Grey Lady to it!

  19. rktbrkr says:

    Should we wait for Kudlow to tout gold?

  20. tawm says:

    The historical comparison of gold to weakening fiat currencies seems to hold here. For you short-term traders, maybe it’s over-priced, but from a long-term perspective, it seems clear that serious Inflation is coming! (By “Inflation,” I don’t mean to quibble about statistical definitions, but a serious rise in the cost of living for ordinary people, and the consequent social disruptions….)

  21. silverking says:

    i love it when people use “if” and “probably” to justify their beliefs. i bought gold as an alternative to holding fiat currencies which have no value, only a promise to pay. to the you cant eat gold believers, that is true, but you could sell gold bought at 400 dollars, exchange it now for 1200 dollars and buy a little sustinance foryour family. and franklin i am a rational investor. which is why i have switched out of gold and into silver when i could get 75 ounces for one ounce of gold. now i will hold until such time that the
    price/earnings ratios of solid companies returns to high single digits/1. argue with me all you want bob in ma and other precious metal doubters, but you cant argue with success. oh, btw, i shorted the s and p at 1560 also, covered at 700 and short again at 1200.

  22. Marcus Aurelius says:

    franklin411:

    Son, if there is a freak of nature, it’s anyone who abandons the concept of the law of supply and demand at the drop of a hat in order to support their beliefs.

    If you cared to make the argument FOR gold as a good investment, you easily could. Yet, instead of acknowledging the properties and characteristics that have caused it to be used as money for ALL of mankind’s history, you come on with the “freaks” comment.

    What a douche you are.

    Fiat currency (especially a fiat dollar) would have been impossible without the forced confiscation and suppression of gold. That’s a fact.

    I’ll give up on gold as a store of value as soon as the bankers and nations set theirs out back by the dumpster.

    It’s worthless, don’t you know.

  23. gbgasser says:

    It really baffles me how many people never think this through. They push gold because dollars are becoming worthless, yet no one knows how much gold is worth without using dollars as a designation. If dollars are worthless and those are being used to denote the value of gold…….isnt gold worthless too? Secondly how many people are only hoping to buy gold now and convert it back to dollars when it goes to 1800? Most of them?

    This idea that gold has some “intrinsic” value is pure bunk.

  24. gbgasser says:

    Marcus

    No one is telling you to give up on gold (central banks are holding it because people make a market for it) just dont ascribe properties to it that it doesnt have. Its use as money throughout history was not as a currency for the masses. It was not used in day to day transactions in most societies. It simply was too valuable. It was like carrying around a $100,000 dollar bill today. Coins that were in general circulation were very little gold AND most of the time the value of the coin was not from the gold in it but simply the stamp the king (or whatever monetary authority) placed on it.

  25. JustinTheSkeptic says:

    I eat it in my Wheaties every morning!

  26. JustinTheSkeptic says:

    Put it on my Weenie every night!

  27. Michael M says:

    Any bull market will attract idiots too and they will ride the asset to the top and all the way down. The question is not whether there are stupid investors in gold.

    The question is if your shoeshine boy is giving you gold stock tips, if your secretary wants to discuss gold miner valuation metrics and crushing technology, if gold mining CEOs have become household names, if you have heard soccer moms at Starbucks discussing platinum vs gold (and not be talking about credit cards), if you have seen gold mining IPOs being ten times oversubsribed, if “peak gold” is more googled than “peak oil” and if bankers have come up with new metrics to justify miner valuation. And that needs to be the case not just in the US, but globally. Gold is not an American asset.

    It’s not the first idiots in you need to watch for, it’s the last ones.

  28. ItalicBold says:

    Does anyone seriously believe that “gold bugs” or their doomsday/madmax scenario has anything to do with the price of gold?

    Like there is this horde of incredibly wealthy, rabidly mad people out there hiding away in their basements frantically buying gold as fast as they can. Yes people, this is how Goerge Soros and his ilk spend their time and money. George Soros is actually an unstable mad man, who jumped at the sound of a whisper and doubled his gold holdings at the top of what he pronounced “The ultimate asset bubble” paying the meager price of 1138 us dollars an ounce.

  29. The Curmudgeon says:

    Gold’s recent rise (the last couple of months) is a Euro story. The Euro block is nervous that the days of the common currency may be numbered, at which point having gold could provide insurance against the dislocations that would inhere with a bunch of countries trying to crank up their own presses again, particularly if the country happens to be a Greece or Spain or Portugal or Italy. You can’t buy deutchmarks just yet, so gold may be the best alternative.

    Of course, the renewed fascination with the yellow metal started back in 2007/08 when it wasn’t clear exactly how this financial system conundrum would play out. Yet, two years plus in, there is really no more clarity than before. As Soros says, Act II of the financial crisis play, Sovereign Insolvencies and Defaults, has just begun.

  30. The Curmudgeon says:

    “This idea that gold has some “intrinsic” value is pure bunk.”

    So too is the idea that fiat currency has any intrinsic value. The difference between bullion and paper is that bullion can’t be created at whim. If you want a currency with “intrinsic” value, price everything in barrels of oil. Which is actually how best to gauge the value of dollars. They’ve been lately going up.

  31. ItalicBold says:

    @The Curmudgeon agreed, everything in our modern lives is a function of energy.

  32. gbgasser says:

    “So too is the idea that fiat currency has any intrinsic value.”

    Couldnt agree more. However, I nor anyone I’ve read has ever said fiat currencies have intrinsic value. They only have value because someone says you need them to pay your taxes with.

    It doesnt matter really what you price things in as long as everything can be expressed in the same price. Creating paper at a whim is not a negative its a positive I think (whose whim does matter of course). Money shouldnt have an expense to produce just an expense to consume (tax)

  33. drey says:

    Late night ‘sell us your gold’ commercials and magazine cover/newspaper headline contra-indicators notwithstanding, we’ve not yet SNIFFED the blow-off top which would be the precursor of a significant downturn for gold.

    It could go down before it goes up, but I’m betting we see $2000 an oz. by the end of 2011.

  34. franklin411 says:

    Agreed. The only things with intrinsic value are the things we can’t live without. Energy, water, food, base metals.

    Give one society some dirty minerals–iron, coal, lead, copper, oil–and the other some shiny minerals–platinum, gold, silver, gems.

    It’s hard to fight machine guns and tanks with jewelry and shiny coins.

  35. shoreb45 says:

    I agree with Alaric. Gold has gone up, and I think will continue to go up, so long as policymakers continue to fight deflation. These magazine covers may be interesting as contrary indicators, but are of little practical use in my view.

    And here is a good article discussing why other more closely followed sentiment indicators on gold, such as the Market Vane Bullish Percent data, and speculation in gold stocks, are not even close to levels seen during past intermediate-term tops in the gold price:

  36. DL says:

    We are no where near the top in gold. However, a 20% decline over four months (or so) would make the bulls a lot less confident.

  37. oldhillbilly says:

    franklin – I think you make some valid points, but I would remind you that in our not so distant history, back before many of the base metals had yet to be discovered by mankind, it was gold and silver that society placed its highest value on. Nickel is trading near $9/lb, copper under $3/lb and a barrel of oil will fetch up about $75. Is it practical that gold is over $1200/per ounce? Probably not. But I would be willing to bet that many of the so-called survivalists would trade you the last cow on earth for a shiny bar of gold. The true value of gold has been and will continue to be argued till the end of time. And while you are correct that gold is neither something one can eat or drink, and without these all men perish within days, nothing in history can claim as long a track record of holding an intrinsic value to mankind. It is greed that propels mankind forward, and even today, just as it was in Biblical times, nothing says to the masses that one has truly become wealthy, quite like their flaunting of gold possession. You say “It’s hard to fight machine guns and tanks with jewelry and shiny coins.” I agree and disagree. I contend its much easier to find those who will fight ‘for you’ when you have gold, diamonds and gems to pay them with. Hand a man a rifle made from the finest cast of iron ore, copper and nickel and tell him to charge a fort and he’ll tell you where to stick the rifle. Hand him a rifle and tell him you will give him gold to capture the fort, and he will rush the gates of hell for you. JMO

  38. royrogers says:

    so we supposed to hold USD now ??

  39. HCSKnight says:

    GBGasser’s quite the sage:
    June 13th, 2010 at 12:28 pm – “This idea that gold has some “intrinsic” value is pure bunk.”
    June 13th, 2010 at 12:36 pm – “…It simply was too valuable.”

  40. JustinTheSkeptic says:

    It’s all about deflation, so why gold? Because it’s all about deflation.

  41. rcogen says:

    “Fox News commentator Glenn Beck on the right to the financier George Soros on the left, with even some sober-minded Wall Street types developing a case of gold fever.”

    In what universe are George Soros’ investment decisions the equivalent of Glenn Beck’s? Isn’t Soros almost the definition of a “sober-minded Wall Street Type[]”?

    Heckuva job NY Times!

  42. uncmed says:

    Can someone explain why Gold and other precious metals (Platinum and Palladium, specifically) do not follow the same GENERAL trend? I know that a lot of the supply side is different for various metals, but I would assume the demand side would be fairly common across the board. It is strange to me to see a broad divergence of trends between the metals.

  43. cognos says:

    There is NO argument for gold as a “good investment”.

    The LONG TERM returns to gold are about 4% and thats the total nominal price return, not the “inflation adjusted” return which I find comical moronic… why would we “inflation adj” returns for something thats not fiat? The answer is simple… the HIDE the fact that its just piss poor.

    So now lets break down that 4% long-term return… it tends to be of 2 distinct types… during some “crisis” gold returns 10-20% annual for a few years, lets say 5-10 years. Then for 10-20 years it returns NEGATIVE. No divs, nothing. Just loses money. This is why your curmudgeon grandpa is always piss poor when he’s 80. He thinks the economic system is broken. While your venture capitalist grandpa is on a yacht with a 27 year old 4th wife.

    Over ZERO 20-year period was one EVER better off in gold, than in just about every category of risk assets.

    Some moron here said, “yeah but I could sell the gold”… “then buy food”. Turns out I can sell my AAPL stock as well. Or ones home. Its ALL just worth what someone else will pay and then back to USD.

    Now is the time to get out of gold.

  44. The Curmudgeon says:

    “This is why your curmudgeon grandpa is always piss poor when he’s 80. He thinks the economic system is broken. While your venture capitalist grandpa is on a yacht with a 27 year old 4th wife.”

    That some idiot would equate happiness with “understanding” the economic system such that he might acquire his fourth wife is precisely why this economic system is broken.

    And you’re just an idiot if you think that gold never beats the stock market over the long run. If you bought the DOW or SPX in 2000 and held it for ten years, you’d have not even broke even. But you would’ve made a killing in gold. If the VC guy bought stock in 2000, he’s probably looking for someone to replace his fourth wife that left him for the curmudgeonly grandpa.

  45. Greg0658 says:

    lol .. on the thread and
    “so-called survivalists would trade you the last cow on earth for a shiny bar of gold”
    ah – it would take a bull too .. so maybe id take 2 bars of gold .. and then your in the money

  46. Efficientish says:

    Here is a breakdown of how gold behaved in the last bear market. I have no reason to believe it would be any different in the next bear market…

    http://efficientish.blogspot.com/2010/06/gold-and-bear-market.html

  47. philipat says:

    You need to factor in the demand for physical gold in a rapidly growing Asia which represents about half the world’s population (US=4%). Gold production is in a steady decline and all the gold ever mined would fit inside 3 olympic sized swimming pools, whereas, by way of comparison, the oil already leaked in the Gulf would occupy 130 such pools.

    Economics 101 really. Or to misquote JP, the price will continue to rise so long as there are more buyers than sellers.

  48. Darkness says:

    gbgasser, exactly. People in antiquity traded food, clothing, building materials, their own labor, salt, and access to clean water. If you needed to get something that you couldn’t arrange a direct trade for, you’d involve a market maker (money changer) to make the deal work.

    Gold IS a fiat currency. If you are worried about inflation, buy property.

  49. cognos says:

    Philipat –

    The problem with the “demand for gold” story… is that as soon as price starts coming down the demand runs for the hills much, much faster.

    Some idiot above said, “if you bought the stock market in 2000″ you would’ve done better in gold. Duh! What an idiot! What about if you bought gold in 1980 or 1985? Then in 2000 you would’ve had 50% the money while the stock market returned 1500% of more.

    I buy low, sell high. What do you do?

  50. cognos says:

    In fact, if one bought both gold and SPX in 1960, 1970, 1980, 1990, and 2000, and 2009…

    Today one would be better off in stocks on EVERY investment except 2000. So thats 5 of 6 for stocks.

    I am pretty sure if you ran the numbers from 10-yr, 20-yr, 30-yr periods from each starting point it would be +90% for stocks.

    I am pretty sure if ran the numbers for monthly avg price investments over 10, 20, 30-yr hoizons I am pretty sure it would be +95% for stocks.

    I am pretty sure if you ran the numbers for 50% SPX / 50% PIMCO Total Oppty fund… it would be 99% for stocks over multiple long-term horizons.

    But yeah… every rich guy I can find seems to have made their money in gold. Glenn Beck cant lead me astray, can he?

  51. van schaik says:

    I’ve been bearish on gold and stocks since, hmmm, maybe last November. I still find it hard to justify buying either at today’s prices. While the stock market has met my expectations recently, the gold bulls, I must admit, have been winning. However, I still believe debt is contracting therefore the economy is contracting and deflation, not inflation, is the primary problem we face economically. In other words, it is a great time to sell gold. http://sites.google.com/site/jpetervanschaik/

  52. Greg0658 says:

    Insomniac ABC News and now CNBC are reporting a NYTimes piece .. mineral deposits found in Afganistan of copper, gold, iron, lithium to the tune of $1T .. add opium and good times are ahead

  53. ItalicBold says:

    “I buy low, sell high. What do you do?” Don’t lie cognos, you never bought any gold when it was low. Thats why your so full of hate. Talk about an emotional investor, implying that George Soros is an idiot for buying gold now. Wheres your 8 billion dollar fund? Really I just laugh at people who get so angry. You spew all this nonsense about how stocks always outperform gold, your as bad as the lot who thought house prices would go up forever. Guess what bud, times change. So should your investment strategy.

  54. gbgasser says:

    “GBGasser’s quite the sage:
    June 13th, 2010 at 12:28 pm – “This idea that gold has some “intrinsic” value is pure bunk.”
    June 13th, 2010 at 12:36 pm – “…It simply was too valuable.””

    Nice try! Recognizing that gold is VALUED by societies is not difficult. Recognizing that its worth is intrinsic is another thing all together. Sure a lot of people have chased the shiny metal through the ages and it made a nice coin but so what. Tell me how much gold is “intrinsically” worth? You cant. You cant value it with out asigning some “unit of account” to it. Something we all agree to use. Value, with our monetary system (and ALL monetary sytems really) is an agreed upon social convention. Without such system gold has no “value”.

    The gold coins of biblical days were “worth” (according to THEIR conventions) herds of sheep or fields of grain not the amount that was traded on day to day basis.

  55. The Curmudgeon says:

    Just because no one should be allowed to spout such stupidity without being called out on it:

    “In fact, if one bought both gold and SPX in 1960, 1970, 1980, 1990, and 2000, and 2009…”

    ~Ten-year holding periods for gold that would have returned more than a similar stock or bond market investment:

    1930-1940; 1970-1980; 2000-2010

    There may be others, but the history of those eras is either so recent or so well-known, that no futher explication is necessary. In all three eras, gold would have fantastically outperformed stocks.

    It’s just not true that gold is always a bad investment and stocks are always good. Like ItalicBold says, believing it so doesn’t make it thus.

  56. There seems to be a lot of confusion about gold. Luckily, it can be dispelled. I’ve put together the salient facts over time here:

    Some thoughts on gold pt1: http://www.acting-man.com/?p=2054
    Some thoughts on gold pt2: http://www.acting-man.com/?p=2165

    plus i wrote two pertinent articles on Mish’s blog a while back:

    http://globaleconomicanalysis.blogspot.com/2007/06/misconceptions-about-gold.html
    http://globaleconomicanalysis.blogspot.com/2007/06/why-does-fiat-money-seemingly-work.html

    Whether you agree with the bullish case or not, once you’ve read all this you are likely to know more about gold than before.

  57. Curm,

    rightly so~, and w/ that, some things:

    ItalicBold Says: June 14th, 2010 at 10:49 am

    “I buy low, sell high. What do you do?” Don’t lie cognos, you never bought any gold when it was low. Thats why your so full of hate. Talk about an emotional investor, implying that George Soros is an idiot for buying gold now. Wheres your 8 billion dollar fund? Really I just laugh at people who get so angry. You spew all this nonsense about how stocks always outperform gold, your as bad as the lot who thought house prices would go up forever. Guess what bud, times change. So should your investment strategy.

    deserve to be (re-)read