When Gold Doesn't Mean A Win

Last week we saw commodities take a tumble…

A notable crash was gold’s five-year-low last Monday, blamed on the news that China (the world’s largest gold buyer) holds less gold than expected as well as the strengthening dollar (up more than 15% from last year).

The gold ETF, SPDR Gold Shares (ETF) GLD, the world’s largest ETF, tanked 9.7% over the last 90 days.

Back in the late 1800s, when gold obviously had much more value, a bubble formed...or as we affectionately call it - The Gold Rush.

Everything That Glitters

As soon as gold was discovered on Swiss immigrant John Sutter’s property in the Sacramento area - no matter how hard he tried, he couldn’t keep the news quiet.

Squatters flooded his property as the California Gold Rush of 1849 erupted on the West Coast.

Some came and went home with billions of dollars of gold, while others were less successful.

Regardless, those so-called “forty-niners” caused San Francisco’s population to grow to 25 times its current size – thus influencing property values.

In 1854, the capital of California was moved from San Jose to Sacramento because of the rush.

And this wasn’t just in California -- there was a Gold Rush in the Denver, Colorado area which yielded similar effects and grew Denver tremendously.

The gold frenzy created increased demand for transportation, leading to the Panama Railway (because there was no Panama Canal yet, and people needed to get out west) as well as the Sacramento Valley Railroad, built for transporting gold to the port in San Francisco.

While we warn about how bubbles are dangerous when it comes to investing and getting the timing right on your trades, bubbles can have a positive, innovative impact on the economy.

Denver, Sacramento and San Francisco wouldn’t be the cities they are today without the Gold Rush.

Back To 2015

The value of the dollar is likely to continue increasing - meaning the value of gold will continue decreasing.

Long-term investors will have to decide if they want to endure through the near bear market, while short-term investors looking to make gains now should probably stay away.