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Gold Kills?


Overnight the SPOOs lost about 0.5%, for no particular reason that I could figure out. In addition, Europe was weaker, with a handful of countries losing a couple of percent, which I assume is related to angst about Greece. The market here wasn't that much worse than the futures market had indicated, as the indices lost about 0.5%, plus or minus, through midday. The market attempted to rally in the afternoon, but it didn't get too far before the indices slid back to the lows, which was where they closed.

Away from stocks, green paper was weaker, fixed income was as well, while oil gained a couple of percent. The metals lifted a bit after Friday's drubbing, led by silver, which gained 2% to gold's 0.5%. Speaking of gold, I usually don't comment on absurd gold articles because if I did I would never have time to do anything else, as there are so many of them, mostly penned by people who really know very little about the subject (though knowing a lot about it still doesn't mean you know where the price is necessarily headed). But in the weekend's Wall Street Journal, Joe Queenan wrote an article headlined, "My Gold Rush -- Away From the Stuff," which was potentially one of the dumbest and contradictory articles that I have read on this subject.

With Investments Like Those, Who Needs Ponzi Schemes? Here are just a couple of the key disconnects: "As opposed to other investments like time shares or collateralized mortgage obligations or Hummel figurines, the value of gold is never linked to sales or revenue or market share or the introduction of exciting new products. It is always linked to bad news…Even though it is a shiny and alluring metal, gold is no fun. If you're looking for fun, get yourself some diamonds."

Now this is nothing more than his own simplistic opinion. Does he think that the value of diamonds doesn't have a psychological component the same way gold does? Does he think it is easier to be defrauded in the gold market than it is in the diamond market (which it isn't)? Queenan fails to comprehend that the previous examples of real-world potential "investments" also have a psychological component. He describes this important psychological variable as emotion, which of course is not accurate, but it makes it easier for him to say it's all about fear and greed, not anything logical or sensible.

The Root of All Stupidity He then goes on to blame all sorts of problems throughout the ages on gold, rather than the underlying fundamentals of either poor government or human nature, "Gold has been at the heart of many other historical misfortunes," before melodramatically summing up with the ridiculous generalization, "Whenever people start looking for gold, other people end up dead."

He gets even more bizarre and sillier: "Gold has long fascinated mankind because it is considered a safe metal…But it is not a safe metal at all; its value gyrates spasmodically according to the vagaries of the market, lurching all over the place." Well, here's a newsflash. Volatility does not equal risk, nor does a lack of volatility equal safety. Its presence or absence is simply a property of markets. Gold is volatile, but so are the shares of the many stocks that he would probably love to own.

Gold has been in demand because it is something that cannot be printed. It is the least bad currency alternative. Note, I said "least bad." It is not a panacea. It is not the answer to everything. It is just the best way to protect yourself against bad governance, especially in the modern age, whether from the executive/legislative branches, or central bankers.

Stock Splits Put the "Fun" In "Fungible" To add insult to injury, our brilliant author makes the point, "Moreover, gold cannot experience the kind of stupendous growth that shares of Amazon or Apple or Google can because gold doesn't split shares or reinvest profits." Do you get it? It's the stock splits that make shares go up! And in periods of madness, when psychology has gotten so warped, giving you four pieces of paper instead of two of equal value is deemed to be a tremendous asset. (As an aside, I used to like to joke back in the late 1990s, when stock splits were all the rage, should you have to pay more for a pizza if it were cut into more slices?)

Gold can experience stupendous growth, and while some stocks go up, others don't. The by-product of Queenan's argument is, it really can't go up well, it can only go down, and it's only for fools.

Like I said, I tend not to reprise these articles, because they are all the same, but this one was so outlandish that I couldn't not say something.

Positions in stocks mentioned: none.