More Signs the Bull Market in Gold Has Ended
Gold is one of those assets that tends to get an emotional response from both its fans and its naysayers. Goldbugs passionately believe that gold is the only "real" store of value and view the phenomenal economic growth of the past 30 years as nothing more than a chimera, as if the massive increase in Western standards of living were all a fantasy. Like Peter Schiff -- an analyst whose work we have NO love for -- goldbugs have an almost cultish view that the end is near...the whole system that was based on lies is about to come crashing down, so you'd better buy gold (and perhaps a bunker in Wyoming) NOW!
Mainstream economists and portfolio managers typically take the opposite view. Lord Keynes famously called gold the "barbarous relic." Less ideological commentators have pointed out that gold pays no interest or dividends and that it is prone to long-term bear markets just like any other asset -- making the claim that gold is a reliable store of value questionable at best.
This brings us to the point we wanted to make today. In looking for the current price of gold, we stumbled across Kitco's website: www.kitco.com. Kitco is a site dedicated entirely to precious metals investing. And front and center, in the middle of Kitco's homepage, we see in large font: "Did gold really go down?"
Kitco attempts to break down the recent decline in the gold price into two distinct factors:
- Gold Price Change due to Strengthening of US Dollar
- Gold Price Change due to Predominant Selling
According to Kitco, roughly half of gold's recent decline was due to dollar strength, not gold weakness. Right... Wasn't diversification out of the dollar one of the stated reasons among goldbugs to buy gold in the first place?
This is an anecdotal example, and it may not mean anything at all. But it looks to us like the goldbugs are starting to get desperate to defend "their" asset. In the early stages of a bear market, you hear supporters make comments like "this is just a correction," or "if you measure the price this way, it's actually still undervalued..." This later morphs into a jealous defense of the asset in question and a blaming of any declines on the standard scapegoats: those evil shortsellers, the government (specifically the Federal Reserve), or the unbelievers in general who "just don't get it."
Could this be the future for the supporters of the barbarous relic? Early signs would seem to indicate yes. Our advice would be to stay as far away as possible from the yellow metal.
Charles Lewis Sizemore, CFA
Chief Investment Officer, Sizemore Capital Management LLC
The views expressed in this post are the personal views of Charles Sizemore and may or may not reflect the investment policies and decisions of Sizemore Capital Management.
Sizemore Capital Management LLC is a registered investment advisor specializing in money management and financial planning for individuals. Please visit us on the web for more information: www.sizemorecapital.com
Check out Charles's new book, available on Amazon.com: Boom or Bust: Understanding and Profiting from a Changing Consumer Economy
Disclaimer: Information provided on this website is not intended as specific investment advice and should not be viewed as such. Investment ideas or specific securities mentioned on this site may not be appropriate for individual investor objectives or risk tolerance. Information provided on this site is compiled from information believed to be accurate at the time of publication but no guarantee as to the accuracy of information displayed on this website is given, intended or implied. Principals may or may not have a financial interest in the securities discussed herein.
Charles Lewis Sizemore, CFA
If you're not reading the Sizemore Investment Letter, then you are missing out on rock-solid investment recommendations designed to profit from the major macro trends shaping the world today.
<b> </b&g
