{"id":2388,"date":"2010-11-23T08:32:06","date_gmt":"2010-11-23T15:32:06","guid":{"rendered":"http:\/\/www.jasonapollovoss.local\/?p=2388"},"modified":"2018-08-17T08:58:10","modified_gmt":"2018-08-17T12:58:10","slug":"gold","status":"publish","type":"post","link":"https:\/\/jasonapollovoss.com\/web\/2010\/11\/23\/gold\/","title":{"rendered":"Gold?!"},"content":{"rendered":"

If you have been reading this blog for any length of time, or if you are new to it, and you haven’t commented well then you are missing out on an opportunity.\u00a0 I am willing to address specific questions.\u00a0 How often do you get to query a retired and very successful investment manager about topics near and dear to your heart, for free?\u00a0 Pause and ponder that for a moment.<\/span><\/p>\n

No such bashfulness exists for my loyal reader N.G. who, encouraged by my addressing her question about innovation, has now submitted the following:<\/span><\/p>\n

“Is gold a safe haven in times of economic turbulence and, if so, why? After all,\u00a0gold has\u00a0no intrinsic worth. Another thing: \u00a0Gold has been on a secular uptrend. Is this likely to continue or is it another speculative bubble?”<\/span><\/p>\n

Let me take these questions in turn…<\/span><\/p>\n

I don’t think of gold as a truly safe haven in times of economic turbulence.\u00a0 Yes, it performs well when there are big concerns that the First World’s economies are in trouble and consequently that their currencies are weak and considered dangerous.\u00a0 But the primary benefit of investing in gold at these times is that there seems to be a belief that gold is a safe-haven.\u00a0 In other words, investing in gold for this reason is a recursive argument.\u00a0 We invest in gold\u00a0because we think that the currencies have no intrinsic value and we are nervous that those currencies are overvalued.\u00a0 But the exact same case can be made for gold.\u00a0 Which brings us to N.G.’s second point…<\/span><\/p>\n

Gold has no intrinsic worth.\u00a0 I disagree with this statement.\u00a0 People covet gold because of its color and quality – that is<\/em> its intrinsic value.\u00a0 You may disagree, but many people choose to live in\u00a0climates because of the aesthetics of the weather or the beautiful sunsets.\u00a0 Most people would not disagree that there is some intrinsic value to living near an ocean, or in the mountains, or in a warm climate.\u00a0 Therefore, it can also be valued that gold has some intrinsic value, too.\u00a0 So the real question, just like the question about whether or not\u00a0real estate prices in California, Florida, the Riviera, Valencia, or other tropical places makes sense is: is gold worth what it is trading for right now?<\/span><\/p>\n

My answer is “no.”\u00a0 But then again, I have been saying that since gold was trading at $1,100 per ounce (sorry Carolyn Tyler) almost three years ago.\u00a0 Gold has basically continued to rise in value.\u00a0 However, I have to say that investing in gold right now is a dangerous proposition.\u00a0 Anytime you are buying into something that is trading at its all-time high, whether that is a stock, a house, or gold, you have to have a compelling fundamental case in mind that supports the idea that you will not just make more money in that investment, but more than you could in some other investment.\u00a0 That is: If I am going to surrender my very liquid and coveted cash, then my investment needs to be the best return:risk combination I am aware of.\u00a0 Is there a fundamental case for gold?<\/span><\/p>\n

I don’t think so.\u00a0 One would argue that the fundamental case is\u00a0that the supply of gold is fixed and therefore any incremental increase in demand should <\/span><\/em><\/strong>lead to a higher price.\u00a0 But demand exceeding supply is the same fundamental case made for any asset in a bubble.\u00a0 These conditions being present don’t make a choice to buy an investment case.\u00a0 An investment is a commitment to illiquidity in hopes of earning a higher return.\u00a0 The only real way to make money in gold, in my mind, is to speculate.\u00a0 That is, to guess which direction prices are going to go.\u00a0 This is not a commitment to illiquidity.\u00a0 This is a commitment to gamble.\u00a0 Some do very well at this sort of thing, and if you do, then by all means purchase interests that are gold-related.\u00a0 Quite frankly, my mind and sense of ethics just doesn’t work this way.<\/span><\/p>\n

Now the really important question that N.G. asked was if gold is a speculative bubble, how much longer will it last?\u00a0 I think that you could make a case that gold will continue to stay at elevated levels and that it might never get back to the low levels it traded at in the early years of the millennium.\u00a0 Why?\u00a0 I said above that gold does have an intrinsic value.\u00a0 The number of people who believe that continues to increase as more Indians and more Chinese attain higher standards of living and many of whom then, in turn, want to own gold objects.\u00a0 Barring any major gold finds in the world’s mines, you would have to believe that the price of gold is going to be permanently higher.\u00a0 How much higher could it rise?<\/span><\/p>\n

I would guess that a good proxy for future price increases in gold would be: the percentage change in gross domestic product per capita for the middle to upper-classes of the world’s largest economies.\u00a0 That is, between 3-10%.\u00a0 Remember my point above, though.\u00a0 Are there competing investments that can earn you better returns-to-risk than 3-10%.\u00a0 If yes, then I would avoid gold.\u00a0 If no, and you feel that you understand gold, then invest in gold.\u00a0 But it’s not for me.<\/span><\/p>\n

Jason<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

If you have been reading this blog for any length of time, or if you are new to it, and you haven’t commented well then you are missing out on an opportunity.\u00a0 I am willing to address specific questions.\u00a0 How often do you get to query a retired and very successful investment manager about topics […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[3],"tags":[],"class_list":["post-2388","post","type-post","status-publish","format-standard","hentry","category-the-blog"],"_links":{"self":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts\/2388","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/comments?post=2388"}],"version-history":[{"count":0,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts\/2388\/revisions"}],"wp:attachment":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/media?parent=2388"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/categories?post=2388"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/tags?post=2388"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}