Gold has always been the favorite commodity of a fringe crowd that doesn’t trust governments, central banks, politicians and the financial system. This part of the gold market drives a lot of the buying and selling; it whips up a lot of frenzy. I don’t have any hard evidence, but I’d argue that gold’s value is inflated by people who aren’t investing in a commodity but in a belief system that may or may not include black helicopters and a U.S. invasion of Texas.
The sad part is that gold always has been a sucker’s bet. It’s supposed to protect against inflation. It doesn’t. It’s supposed to retain its value. It doesn’t. For those reasons, gold is supposed to be the ultimate currency. It’s not.
As fund manager and blogger Barry Ritholtz said of gold’s fundamentals: “It has none.”
~ David Weidner, "Why gold is falling and won’t get up again," MarketWatch, July 21, 2015
Jul 29, 2015
WSJ's Jason Zweig on holding gold: "an act of faith" (2015)
It is time to call owning gold what it is: an act of faith. As the Epistle to the Hebrews defined it forevermore, “Faith is the substance of things hoped for, the evidence of things not seen.” Own gold if you feel you must, but admit honestly that you are relying on hope and imagination.
Recognize, too, that gold bugs—the people who believe in owning the yellow metal no matter what—often resemble the subjects of a laboratory experiment on the psychology of cognitive dissonance.
When you are in the grip of cognitive dissonance, anything that could be regarded as evidence that you might be wrong becomes proof that you must be right. If, for instance, massive money-printing by central banks hasn’t ignited apocalyptic inflation, that doesn’t mean it won’t. That means it is more likely than ever to happen—someday.
[...] So, if buying gold is an act of faith, how much money should you put on the line?
Laurens Swinkels, a senior researcher at Norges Bank Investment Management in Oslo, reckons that the total market value of the world’s financial assets at the end of 2014 was about $102.7 trillion. The World Gold Council estimates that the world’s total quantity of gold held for investment was about $1.4 trillion as of late 2014. So, if you held the same proportion of gold as the world’s investors as a whole, you would allocate 1.3% of your investment portfolio to it.
Anything much above that is more than an act of faith; it is a leap in the dark. Not even gold’s glitter can change that.
~ Jason Zweig, "Let's Be Honest About Gold: It's a Pet Rock," The Wall Street Journal, July 17, 2015
Recognize, too, that gold bugs—the people who believe in owning the yellow metal no matter what—often resemble the subjects of a laboratory experiment on the psychology of cognitive dissonance.
When you are in the grip of cognitive dissonance, anything that could be regarded as evidence that you might be wrong becomes proof that you must be right. If, for instance, massive money-printing by central banks hasn’t ignited apocalyptic inflation, that doesn’t mean it won’t. That means it is more likely than ever to happen—someday.
[...] So, if buying gold is an act of faith, how much money should you put on the line?
Laurens Swinkels, a senior researcher at Norges Bank Investment Management in Oslo, reckons that the total market value of the world’s financial assets at the end of 2014 was about $102.7 trillion. The World Gold Council estimates that the world’s total quantity of gold held for investment was about $1.4 trillion as of late 2014. So, if you held the same proportion of gold as the world’s investors as a whole, you would allocate 1.3% of your investment portfolio to it.
Anything much above that is more than an act of faith; it is a leap in the dark. Not even gold’s glitter can change that.
~ Jason Zweig, "Let's Be Honest About Gold: It's a Pet Rock," The Wall Street Journal, July 17, 2015
Paul Brodsky on the value of gold: "It's intrinsically worthless" (2015)
It’s intrinsically worthless or intrinsically priceless. You can build a financial model to value it, but every input is going to be your imagination.
~ Paul Brodsky, a former hedge-fund manager who now is a strategist at Macro Allocation, an investment-research and consulting firm in New York, quoted in "Let's Be Honest About Gold: It's a Pet Rock," WSJ, July 17, 2015
~ Paul Brodsky, a former hedge-fund manager who now is a strategist at Macro Allocation, an investment-research and consulting firm in New York, quoted in "Let's Be Honest About Gold: It's a Pet Rock," WSJ, July 17, 2015
Portfolio manager George Zivic: "not a single motivating reason to own gold" (2015)
The Fed's decision to restock the rate toolkit has got the gold market very nervous. We have already seen that gold did not perform as a safe-haven investment. There is not a single motivating reason to own gold.
~ George Zivic, a New York-based portfolio manager at OppenheimerFunds Inc., which oversees $235 billion, BloombergBusiness, July 20, 2015
~ George Zivic, a New York-based portfolio manager at OppenheimerFunds Inc., which oversees $235 billion, BloombergBusiness, July 20, 2015
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