Last week, we published a 2,500-word opus on what lessons could be learned from the rise and fall of gold.

There was lots of feedback on the general concept and many of the specifics. By and large, the response was positive, with most of the pushback coming from those who were long gold or other metals. I thought it might be worthwhile to respond to some of the comments that came my way, both positive and negative.

1. Denial. I guess this should not have surprised me, but: People called the 38 percent drop from the peak a “pullback.” Really? That’s like saying leprosy is a dermatological condition.

It is not completely inaccurate to say that we don’t know for sure if the secular bull market in metals is over. I have no objection to anyone saying we don’t know how this ends.

But ask yourself this: If stocks fell 38 percent, what trader would not declare the secular bull market over? How much does something have to drop before anyone admits the trend is broken? I chalked that up to trader’s denial.

2. Not about gold. Quite a few people understood that the entire idea of the piece was not about gold, but rather used gold as a jumping off point to discuss investing errors in general. That the 10 “lessons” offered in this piece weren’t specific to gold was by design.

Some of the pushback said this critically – “These lessons don’t even apply to gold!” – which really confused me. It was supposed to be investing advice that could be applied to equities, bonds, real estate or commodities. I have done similar such “lessons” after elections, and about investing in general (see this and this).

 

Point 3 -10 continues here

Category: Apprenticed Investor, Gold & Precious Metals

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.

9 Responses to “Pushback: Lessons from Gold’s Rise & Fall”

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  2. A says:

    Actually, Barry, this sounds like a positive outcome.

    At least you pushed a large number of people out of complacency.

    A good argument will do more for the average investor, than countless hours in front of social media or talking head television.

    Keep them agitated. They will learn from it.

  3. Iamthe50percent says:

    “Some of the pushback said this critically – “These lessons don’t even apply to gold!” – which really confused me.”

    It’s because gold is a religion. They have Faith. Those lessons don’t apply to gold because gold is magical, NONE of the ordinary rules apply, according to true believers.

    BTW, thanks once again for discussing the 20-50 EMA trading rule. I made thousands of dollars (four thousand IIRC) using that rule and completely ignoring the narratives. I just took the chart as some unknown time series and applied the rule. It was nerve-wracking but it did work. Worked even better on silver, wheras the would be Hunt’s are broke now.

  4. rd says:

    The four main lessons that I have learned about gold over the past 30 years are these:

    1. You can use it as a large percentage (25% Permanent Portfolio) or small percentage (say 3%-5%) of a regularly rebalanced portfolio as long as you have other historically very uncorrelated assets for the rest of the portfolio.

    2. Gold’s two big peaks since 1971 occurred during one period with sky-rocketing inflation and interest rates and in another period with overall falling long interest rates, so it seems to be driven much more by inflation expectations of a relatively small group of investors instead of the overall bond market crowd.

    3. Professional traders can trade it using agnostic technical models but the rest of us should stay away from trading it.

    4. Hard, physical gold jingling in your pocket or buried in your backyard would be worth much more in a crisis than a promise by a financial institution that they have gold safely stored away somewhere in your name, the record of which is stored in a computer. If you are really concerned about WW II in Europe/Asia level of instability, then physical gold, canned goods, fresh water supply and farmland would be much more important for survival than wealth in a brokerage account. I don’t think we are anywhere close to this level of instability, but GLD is certainly not the way I would hedge it. Krugerands and Maple Leafs would be the way to go.

    • RW says:

      I went through a semi-Armageddon phase a few decades ago and although I recovered from the fever and disposed of most of the swag I still have a bag of silver (usual $1k face-value, mostly dimes and quarters) and smallish stack of gold coins in storage. Whether it’s nostalgia, a Linus-blanket remnant or just flat-out laziness is something I don’t bother my head about any more; the carry is small and so it sits.

  5. mick says:

    I am not arguing with barry’s point about investing.
    when i posted a few days ago on his (wa post–bezopo) column on gold, i mentioned jim grant, fred hickey, bill fleckenstein, etc, to say that barry’s arguments do not speak to theirs.
    there were replies (i just now see) saying that these people were wrong about gold and about inflation. i would say that we might wait to see how the whole bernanke/yellen fed era plays out.
    grant, fleckenstein, etc were among the few who foresaw the 2000 crash and the 2008 crash. how many are in their company?

    (i also mentioned economist brad delong in my earlier post and was asked (i only notice today) to back up my point with data. i would have you read delong’s review of greenspan’s autobiography in the l.a. times, was it dec 2007? greenspan was delong’s hero right up to the debacle. i think perhaps he apologized but i don’t think an apology covers such massive failure in judgement. delong is a valuable political pundit.)

  6. Al_Czervik says:

    wrt “9-Goldbug as a Pejorative Term”, I give you this:

    http://www.ritholtz.com/blog/2013/04/the-10-rules-of-goldbuggery/

    Rereading that article, I agree with nearly all of the criticisms of the true-believers. But there seems to be more than a little suggestion that people who own gold are a lower form of speculator than are buyers of equities and debt instruments (because gold has no “fundamentals”). I reject the notion that gold has no “intrinsic value”. There is no such thing as *intrinsic* value. Value is always an *extrinsic* concept assigned by humans (that’s why it is called *value*). Keynes said as much when he talked about the Beauty Contest.

    I agree that much of the macro rationalizing that surrounds gold speculating is useless. When the market goes against them, then somehow it’s the market that is wrong. However, macro rationalizing is not specific to gold (listen to CNBC or Fox Business).

  7. Al_Czervik says:

    wrt “9-Goldbug as a Pejorative Term”, I give you this:

    http://www.ritholtz.com/blog/2013/04/the-10-rules-of-goldbuggery/

    Rereading that article, I agree with nearly all of Barry’s criticisms of the true-believers. But there seems to be more than a little suggestion that people who own gold are a lower form of speculator than are buyers of equities and debt instruments (because gold has no “fundamentals”). I reject the notion that equities and bonds have “intrinsic value” while gold does not. There is no such thing as *intrinsic* value. Value is always *extrinsic*…it is assigned by humans (that’s why it is called “value”). Keynes said as much when he talked about the Beauty Contest.

    I also agree that owners of gold are frequently given to macro rationalizations (especially those of the political or “moral” sort). However, macro rationalizations are not specific to gold (turn-on CNBC or Fox Business sometime).

  8. Ponchovilla says:

    None of this really matters so long as you own an “End of the World 2012 Gold Plated Mayan Coin 1 Troy OZ” which can easily be purchased on Amazon at 39c + $4.49 shipping
    http://www.amazon.com/gp/offer-listing/B006OC1YPI/ref=dp_olp_new?ie=UTF8&condition=new

    Gold as coinage does have an intrinsic value. For example if you have a 1 oz gold bullion coin .99999 purity the intrinsic value is the price of gold on that day (spot price). If you decide to sell your 1 oz coin the price you receive is the intrinsic value (spot price) plus rarity of the coin (grading of coins can be very subjective without PCGS coin grading) minus transaction costs. Generally the spot price is in the neighborhood of the “intrinsic value” The price you receive for your coin…it depends. Consequently “intrinsic value” depends on the whether you are the buyer or you are the seller.