World Gold Bug Article on WSJ Front Page
Front page WSJ story today — World Is Bitten by the Gold Bug:
“Gold continued its upward march in a time of global financial tumult, closing above $1,500 an ounce Thursday for the first time as investors seek safe haven in the metal.
In a remarkable performance for any sort of asset, gold has notched a record high every day this week—on days when investors were alternately gloomy and optimistic. On Monday, as stocks swooned after Standard & Poor’s warned about the credit rating of the U.S., gold reached a new high. It kept rising on Tuesday and again on Wednesday, as stocks soared on impressive corporate earnings.
On Thursday, gold rose $4.90 an ounce to $1,503.20, another nominal record high and its first settlement above $1,500. Gold is up for five straight weeks, and has gained 5.8% so far this year.”
Front page stories are not great usually for investments — although this is the WSJ, not Time or Newsweek. It has much less of a contrarian indication.
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Update: I see this was also in the Guardian this week:
Gold’s glittering history
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Source:
World Is Bitten by the Gold Bug
Carolyn Cui
WSJ, APRIL 22, 2011
http://online.wsj.com/article/SB10001424052748704889404576277361924031364.html
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April 22nd, 2011 at 9:34 am
Gold makes great internet click fodder. Eyeballs love it for lots of reasons. I have yet to see one article about when to sell gold…how to take a profit in it…what the plan for giving it to the next guy is. The absolutely only way to make money on it as an asset class is to sell it to someone for a higher price. Gold reminds me of those Japanese erasers my 6 year old collects. She and her friends can’t live without them…they covet them…they fight and scream and cry over them…the rest of us…well….
The shark jump for me was the University of Texas endowment fund recently taking delivery of 1 Billion in gold.
April 22nd, 2011 at 9:35 am
Perhaps it’s time to invest a small part, maybe 20%, of the annual inflows into the social security trust fund into gold in order to preserve the future of young people entering the world of work, so they may have a safe and prosperous retirement at a productive age.
April 22nd, 2011 at 9:46 am
GOL (giggling out loud)
April 22nd, 2011 at 9:50 am
Analysis of my statement above:
Liquidity: 20% of payroll taxes
Liquidity Flows: Focused into gold
Greater Fool: Price of gold rises due to excessive liquidity, growing demand, and limited supply. Demand is artificial due to legal decree, not consumer demand. Greater fool = Uncle Stupid and payroll taxpayer
Morals of a sociopath: Whoever sold this scheme held a lot of gold
Investment in things not understood: Why is gold something special? It’s just a yellow metal with few uses that greater fools want because the price keeps rising and it’s popular.
April 22nd, 2011 at 10:16 am
A million magic bars, that ETF’s alright
A multi-million dollars almost overnight
Twice as sweet as sugar, twice as bitter as salt
And if you get hooked, baby, it’s nobody else’s fault, so don’t do it!
Get higher, baby! / And don’t ever come down!
– Grandmaster Flash
April 22nd, 2011 at 10:22 am
Ah….no. When the world is bitten by the gold bug the penny gold stock run will rival the worthless Inet stocks in valuation. It was so bad back then that a gold stock actually changed it’s name to an Inet stock and took off through the roof. Things will flow in the other direction when the world gets bitten
April 22nd, 2011 at 10:33 am
Yes, I agree with that fellow above at the top. Social Security needs to get in now while the price is so low. It’s the only way to balance the budget.
April 22nd, 2011 at 11:08 am
It don’t count till the front of Time magazine says it is so. You need to wait till it hits the front cover of Time.
Or is that Newsweek?
http://www.newsweek.com/2011/04/17/gold-rush.html
April 22nd, 2011 at 11:33 am
I’ll take that softball .. its Rolling Stone Magazine
Cover Of The Rolling Stone by Dr.Hook
http://www.youtube.com/watch?v=-Ux3-a9RE1Q
April 22nd, 2011 at 11:38 am
@Pantmaker Says:
“The absolutely only way to make money on it as an asset class is to sell it to someone for a higher price.”
same for anything else… or do you make money by selling stocks at a lower price?
@dead hobo Says:
“Why is gold something special? It’s just a yellow metal with few uses that greater fools want because the price keeps rising and it’s popular.”
So are most of the things people buy and sale.
Gold price reflects:
1) Repudiation of FED policies
2) Distrust of government
3) Distrust of the legal system
4) Gold is money and is/has been accepted almost everywhere in the world as valuable for thousands of years.
April 22nd, 2011 at 11:43 am
Thank you, BR, for discreetly slagging Time & Newsweek.
I have not read either regularly since about the last time the gold chart went nearly vertical, but I did thumb through the current NW the other day. The cover story was about middle-aged men losing good jobs lately, but instead of humanity, or compassion, or even decent financial journalism, all Newsweek could come up was a snide, petty little identity-politics hatchet job.
I wouldn’t line a parrot cage with either of those rags. The pairing of those two was always about as cheesy a marketing gimmick as Quisp and Quake, and now about as dated, as well.
As for the thesis that too much pop-culture coverage augers an approaching gold top, it’s a fair point, but something I’ve heard for a while now. The top will surely come, but as always, good luck trying to time it.
April 22nd, 2011 at 11:44 am
‘Front page stories are not great usually for investments — although this is the WSJ, not Time or Newsweek. It has much less of a contrarian indication.’
Yes. But it’s an early warning. The WSJarticle documents the ongoing process of converting skeptics and naysayers (‘it’s just a yellow metal’) into believers, who will then scoff that ‘dollars are just colorful pieces of paper.’
Time for the MSM to perform its noble role of getting the public in at the top! Buy $5,000/oz, out of the money calls — you can’t lose! Operators are standing by, have your credit card ready …
April 22nd, 2011 at 12:09 pm
It looks like Gold, and many other commodities too, is being driven by the $USD and Yen carry trades: Borrow cheap $USD (essentially at negative interest rates) and buy gold. With the slowly rising price floor from funds and hoarding that’s a lot of upward pressure and not much sign it’s going to stop soon. That it will stop is a given but no telling when of course.
The counter-argument is that the carry trade is actually a reason gold is not even higher. But that’s an old argument (e.g., http://tinyurl.com/4y6lj2) and I haven’t seen much evidence that short-interest was a large part of the story then or now. I don’t track this sort of thing closely however; I mainly trade gold on momentum (w/ a smaller position set aside for portfolio diversification) so I’ve been mostly long for awhile.
A better argument is that the growing fear a change in global currency regime is coming has taken substantial root and major players are beginning to hoard as a hedge. Since I’m fairly convinced the $USD needs to be even lower and the US current account would improve in consequence I tend to be more sanguine about this but have no problem riding the momentum tide while it lasts; i.e., I’ll go short when it hits the cover of Time.
An interesting side-view of this is to compare gold price (or GLD) to a gold miner index or fund (eg. GDX). Gold miner equity prices, the majors at least, are typically leveraged to gold price as a function of marginal profitability (rising gold prices outpace the cost of getting the gold out of the ground) and the efficiency of their trading desks so the ratio of gold miner price to gold price is usually a significant increment above 1; volatility aside (smoothed) gold miner prices rise more than gold in a rising market and vice versa.
Now it’s barely 1 to 1 and, in some cases, less (there are periods where it improves but overall metal and miner prices are tracking 1 to 1) so the traditional leveraged relationship between the price of the physical and the price of major miner equities has broken down or the fundamental story has changed in some way or there is no fundamental story and those who know the biz best know it.
April 22nd, 2011 at 12:28 pm
[...] Contrarian indicator? Gold on the front page of the WSJ. (Big Picture) [...]
April 22nd, 2011 at 1:02 pm
One good 20% correction in gold, and you’ll have the bears coming out of the wood work.
If we get a decent correction some time in the next month or two, BUY IT.
April 22nd, 2011 at 1:55 pm
DL,
Admire your positive outlook.
Tell me, if gold is so valuable, how come gold mines don’t share the same relative valuation? Or even close? Some look like terrible investments.
I understand equities and the liquidity effect and I believe the flight to safety after 6-30 will enhance the value of a very reactive bond fund I have my eye on, but don’t understand gold manias and probably never will. It will be interesting to see valuations in commodities 60 days after 6-30. It will be especially interesting to see gold valuations after the US starts balancing a budget and/or has to borrow real money again to run a deficit. I see gold at $500 or less when there are no more QE events and the US finally has to tax and spend within its means without a deficit that requires foreigners to contribute (I think ‘borrowing from ourselves’ is much less of a deficit threat but will still hit gold adversely).
April 22nd, 2011 at 2:28 pm
The violence in Syria is worsening. Yemen is a mess. Ditto Libya. Bahrein, too. Egypt’s as rocky as the pyramids. Oh, then there is Iran.
Funny how quiet things are in Saudi Arabia. Summers there are long and hot.
Would anyone disagree that trouble there would not send gold much, much higher?
April 22nd, 2011 at 2:34 pm
On when to sell gold. Instead of thinking about gold going up in dollar terms, think about dollar going down in gold terms. From that view – the time to sell gold is when dollar stops going down.
As long as US plans to pay back every dollar borrowed with a 50 cent piece – dollar will continue to go down.
SO – time to sell gold is a long way off. US gov has to get act together and solve real problems. Won’t happen any time soon.
April 22nd, 2011 at 4:03 pm
gordo gets it…dl knows it…
http://www.financialsense.com/contributors/doug-casey/debunking-anti-gold-propaganda
…this is not a new story, it has been 10 years now…in all fiat currencies, not just the USD – see this table
http://red-pill-blue-pill.blogspot.com/2011/04/gold-price-change-over-last-decade-in.html
…it’s a bit early for the magazine cover, but, it’s coming…with real interest rates negative, PM’s, are a good place to be…Got Gold, yes…but have you been watching silver lately – it is starting to go parabolic…
…miners are lagging metal, this is an opportunity to sell a bit of your metal at significant profit, and invest it in the equity of some miners and ramp up with the leverage that should return…
April 22nd, 2011 at 4:26 pm
@dead hobo Says:
“I understand equities and the liquidity effect and I believe the flight to safety after 6-30 will enhance the value of a very reactive bond fund I have my eye on, but don’t understand gold manias and probably never will.”
So stocks are not manias in your eyes? So liquidity can not drive gold, oil, and other commodities? So basically you are under Mr. Ben when he claims his liquidity injection is working since the stock market is up and at the same time denies that the same liquidity is not moving all commodities. I guess all dollars he prints come with a note that reads: “only to be use to buy stocks!”
“It will be interesting to see valuations in commodities 60 days after 6-30. It will be especially interesting to see gold valuations after the US starts balancing a budget and/or has to borrow real money again to run a deficit”
It will also be interesting to see stock valuations if that where to happen..
“I see gold at $500 or less when there are no more QE events and the US finally has to tax and spend within its means without a deficit that requires foreigners to contribute (I think ‘borrowing from ourselves’ is much less of a deficit threat but will still hit gold adversely).”
It will not happen. Do you actually think that there will be a balance budget?
Funny that many in this blog kept harping on the bears by saying “well you are sore losers because you missed the biggest market rally of the decade” and yet they can’t see that they missed the bigger rally: that of gold and silver.
April 22nd, 2011 at 4:51 pm
…well said pierre…to reinforce, check the table at the 2nd link @4:03…
April 22nd, 2011 at 6:01 pm
I was starting to get concerned about a popping bubble in gold/precious metals. But with all of the people that are still saying gold isn’t worth buying, it gives me more confidence that the ride isn’t over. Look at this gold chart since 2000, not many stocks have done this well. Massive tax cuts and starting a two now three front wars and expecting anything good to happen to the economy, IMHO you is delusional. Look at history. To me gold always has been an insurance policy against stupid political decisions.
http://www.kitco.com/scripts/hist_charts/yearly_graphs.plx
Or if you think that is good look at silver:
http://www.kitco.com/scripts/hist_charts/yearly_graphs.plx
Looks pretty much like a bubble. But as long as the investments in this metals is so narrowly focused, it may have longer to run. By the way I’ve been using stops (moving) to protect some of the gains. Mining stocks haven’t done as well as the metals, but as a group they have out performed just about any other group of stocks.
Hanging loose with gold, silver and platinum
Next to farm land, nothing has had a better return. Greenspan once called gold the barbaric relic. I would take that as an endorsement of its
investment potential.
April 22nd, 2011 at 7:01 pm
What will happen to the U.S. government interest payments on the debt when the Fed is forced to raise interest rates to fight inflation? Hmm… gold seems like a logical place to be. The USD seems to be the scarier bet in my opinion.
April 22nd, 2011 at 7:04 pm
Gonzalo Lira has an interesting post on the subject:
http://gonzalolira.blogspot.com/2011/04/whats-really-worrisome-about-treasury.html
Ignore James Turk at your own peril:
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/4/20_James_Turk_-_We_Live_on_the_Edge_of_Chaos,_Dollar_to_Plummet.html
April 22nd, 2011 at 8:13 pm
…my apologies if I slighted your namesake Monsieur
“ To punish the oppressors of humanity is clemency; to forgive them is barbarity. ”
— Maximilien Robespierre, 1794[11]
…voila
April 23rd, 2011 at 1:45 am
“Got Gold”* .. hum .. food, housing, heat (includes clothing) and toliet paper** (and a guitar)(or a harmonica)(a good saw)(and a sword – after the stash of bullets are used up)
* I don’t buy the gold thing in the grass roots – not right away – there won’t be any trust there either (maybe in 50 years as society tries to rebuild old world ways and superstitions)
** equivilant
April 23rd, 2011 at 7:38 am
Robespierre,
Excellent job missing the point in everything I wrote.
1) I’m about 85% in equities now, I tool profits a week or so ago on something. At that time i was 90%+ in. I am up a lot. I started inching in 11-1-2010 and was in fully by12-31, more or less. After BB stated QE2 was meant to support equity prices, I jumped in wholeheartedly. Prior to his announcement, anyone who openly suspected the Fed was supporting asset prices was looked at as a tin foil hat wearer. Since QE1 was not advertised as a pump, I ignored it because I am playing with my life savings, not pizza money.
2) Of course equities will drop around 6-30. I’m counting on it. Hence my reference to the reactive bond fund. I expect a flight to safety bond rally will goose my return possibly as much as 10% to 15%.
3) Of course the US will someday balance its budget willingly or others will force it to. The resulting deflation from the withdrawal of QE2 , the UST needing to borrow real money as opposed to printed money, and the eventual balancing will force gold to $500 or less. All prices will fall. The deflation is years off, but gold will still fall through the floor in value very soon. Liquidity is pumping all prices now. Withdraw liquidity and watch them fall … except for oil related commodities that are based of futures contracts tied to current high prices. They will only trickle down.
I enjoy the fact I can warn until I am blue in the face and people still think voodoo charts rule the stock market. I warn so I won’t feel guilty for selling to those who buy at the top. Thanks for ignoring me. Thanks for having no idea about economic relationships and liquidity flows.
April 23rd, 2011 at 9:36 am
@dead hobo Says:
“Thanks for ignoring me. Thanks for having no idea about economic relationships and liquidity flows.”
I didn’t ignore you. My contention to your comments was that somehow you classify the gold rally as “mania”. My point was and is that gold is been driven by FED liquidity (and $ devaluations) just as stocks are. To make my point very clear, the FED can add all liquidity it wants. It can not, however, select where that liquidity goes. Clear enough for you?
“the UST needing to borrow real money as opposed to printed money”
All money is printed money. Your bet is that there will be no more QE. Mine is that the FED has no choice but to continue QE in some form or another…
April 23rd, 2011 at 10:31 pm
“I see gold at $500 or less when there are no more QE events and the US finally has to tax and spend within its means without a deficit that requires foreigners to contribute…”
And when….pray tell….is that going to be??
Do you see any signs of that happening any time soon??
April 24th, 2011 at 6:54 am
Could gold correct, sure. Is $1500 a major/temporary top? It may well be, though I can’t tell.
However, set aside gov outlawing gold (or alike), it is likely to perform better than most alternatives, especially long term given the grim prospects of the US gov finances and the extent policy makers are willing to go to avoid dealing with the underlying issues.
Any USD denominated assets are suspect due to ZIRP, deficits/debt, and printing.
QE2 will conclude soon. But, markets are likely to hold their own longer than many believe as participants expect the B-PUT to kick in as soon as really needed…
I don’t want to think what happens if the B-PUT won’t be there when truly needed (from speculator point-of-view), but 30 years of history suggest it is a reasonable bet that the B-PUT will be there sooner-or-later …
FWIW, I don’t like selling my gold holdings. Thus, I cushion with PUTs when in doubt…
April 24th, 2011 at 7:06 am
PS:
A lot depends on how “regime uncertainty” unfolds.
That being said, it is as difficult for the US to put order in its finances as it is for England and Greek.
The US hasn’t gone through a major financial crisis since the 1930s, the 1970s was a mid-crisis. Last time the US seen hyper-inflation was during the civil war I think.
Thus, the institutional memory can’t anticipate the unbearable price of reckless spending and inflationary policies.
This logic suggests that containing USD exposure is a responsible approach…
April 24th, 2011 at 3:45 pm
The price of gold will reach a long term top, interim tops not-withstanding, when deposit accounts yield a positive real rate of return and people regain their confidence in fiat money.
April 24th, 2011 at 6:20 pm
Japan getting ready to dump UST….China making noise about dumping UST….
Got QE3??
LOL
April 24th, 2011 at 7:37 pm
At a certain point the finances of an entity are beyond the tipping point, or beyond the point of no return.
Gov finances are no exception.
When gov monopolizes the currency, as is the case quite often, the ramfication are broad and painful.
Is the US beyond the point of no return? How long would it take till we know it for sure?
Observe that the wrong bet here is truly costly.
FWIW, sadly I can’t see how the US gets of bind without restructuring its debt and obligations – practically speaking.
Old school inflation could go a long way, but it is difficult to create genuine credit driven inflation with the current conditions.
Aggressive deficits and money printing could arugably help, except the poplulation grows increasingly suspicious of the USD.
Last point: MANY people don’t worry or don’t care.
Good friends, inteligent and responsible, defended the Fed and recent policies…
They didn’t necessarily like them, but believed it is for the greater good, and certainly didn’t come across concerned… (I probably came across alarmist …).