SAN
FRANCISCO (MarketWatch) — Gold does not always glitter, but you
wouldn’t know that from surging worldwide interest that has turned the
yellow metal red-hot.
Gold has become highly prized bling, as anxious and astute buyers alike, from hedge-fund players to central bankers, flock to the “currency of fear.” Gold at around $1,400 an ounce is almost double what it commanded two years ago, and gold’s price is up almost 25% so far this year alone.
It’s been a great ride. Except gold is a bad investment.
Gold’s feverish run has made a lot of people a lot of money, and though the rally has taken a breather in the last few days, there’s no shortage of flag-waving supporters who claim gold is on a march to $1,600, $1,800, $2,000 and beyond. After all, gold is still well below its 1980 peak, when it was worth around $2,300 an ounce in today’s dollars.
Certainly there are reasons to own gold in a diversified portfolio. Yet gold isn’t like a stock or a bond. It offers no income, no dividend, no earnings. It is considered a store of value, an alternative currency that’s safe beyond reproach, but it is not cash in the bank, or even the mattress. Gold has no untapped intrinsic value; it is worth only what people are willing to pay for it. And lately, many people have been only too willing.
Gold has become highly prized bling, as anxious and astute buyers alike, from hedge-fund players to central bankers, flock to the “currency of fear.” Gold at around $1,400 an ounce is almost double what it commanded two years ago, and gold’s price is up almost 25% so far this year alone.
It’s been a great ride. Except gold is a bad investment.
Gold’s feverish run has made a lot of people a lot of money, and though the rally has taken a breather in the last few days, there’s no shortage of flag-waving supporters who claim gold is on a march to $1,600, $1,800, $2,000 and beyond. After all, gold is still well below its 1980 peak, when it was worth around $2,300 an ounce in today’s dollars.
Certainly there are reasons to own gold in a diversified portfolio. Yet gold isn’t like a stock or a bond. It offers no income, no dividend, no earnings. It is considered a store of value, an alternative currency that’s safe beyond reproach, but it is not cash in the bank, or even the mattress. Gold has no untapped intrinsic value; it is worth only what people are willing to pay for it. And lately, many people have been only too willing.
“Gold
is going up because people are buying it, and people are buying it
because it’s going up,” said Leonard Kaplan, president of Prospector
Asset Management in Evanston, Ill., and a longtime gold trader.
Golden fleeceYou might be convinced you have the Midas touch, but if you’re buying gold at these prices, you’re speculating, not investing. There’s nothing wrong with that — but call it what it is.
“Gold is always a speculation,” James Grant, editor of Grant’s Interest Rate Observer and a longstanding gold bug, noted in his latest newsletter.
Gold may be a good speculation; even cautionary voices concede that gold is not yet displaying the parabolic hockey-stick pattern that frequently forms an ugly bubble. Low yields on safer assets such as bonds and cash encourage risk-taking and speculation, which favors gold, silver, metals, commodities and many stocks. If the U.S. dollar continues to decline, gold will be a main beneficiary.
Hedge-fund managers George Soros, John Paulson and Eric Mindich have surmised as much, judging by the massive stakes they held in SPDR Gold Trust ETF (US:GLD), the leading exchange-traded gold fund and the world’s second-largest ETF with assets of almost $58 billion versus about $40 billion a year ago.
The three hedge-fund titans alone controlled around 10% of the Gold Trust’s shares outstanding at the end of June, according to the most recent data available. Of course, they staked their claim early, and their view on gold and the dollar now may have changed, as investors will soon discover when these influential funds release Sept. 30 portfolio holdings.
Golden fleeceYou might be convinced you have the Midas touch, but if you’re buying gold at these prices, you’re speculating, not investing. There’s nothing wrong with that — but call it what it is.
“Gold is always a speculation,” James Grant, editor of Grant’s Interest Rate Observer and a longstanding gold bug, noted in his latest newsletter.
Gold may be a good speculation; even cautionary voices concede that gold is not yet displaying the parabolic hockey-stick pattern that frequently forms an ugly bubble. Low yields on safer assets such as bonds and cash encourage risk-taking and speculation, which favors gold, silver, metals, commodities and many stocks. If the U.S. dollar continues to decline, gold will be a main beneficiary.
Hedge-fund managers George Soros, John Paulson and Eric Mindich have surmised as much, judging by the massive stakes they held in SPDR Gold Trust ETF (US:GLD), the leading exchange-traded gold fund and the world’s second-largest ETF with assets of almost $58 billion versus about $40 billion a year ago.
The three hedge-fund titans alone controlled around 10% of the Gold Trust’s shares outstanding at the end of June, according to the most recent data available. Of course, they staked their claim early, and their view on gold and the dollar now may have changed, as investors will soon discover when these influential funds release Sept. 30 portfolio holdings.
