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XMFSinchiruna (27.56)

The 5 Biggest Myths About Gold

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June 09, 2009 – Comments (32)

Special thanks for this article go to dudemonkey, whose comments to the Top 10 Reasons to Hold Gold, Bar None got me thinking about approaching gold through the eyes of those who remain skeptical. His ability to embrace disagreement with an open spirit, through mutually respectful dialogue, is precisely what TMF is all about in this Fool's eyes.

So here you go, Fools ... The 5 Biggest Myths About Gold

http://www.fool.com/investing/general/2009/06/02/the-top-10-reasons-to-hold-gold-bar-none.aspx

I hope that this article will help spark a critical dialogue between the multiple perspectives toward gold we have within our community, and that Fools can begin to approach this contentious topic with more of the openness and respect of dissenting opinions that so defines Fools.

Dudemonkey, I know this isn't exactly the type of article you had in mind ... I will still consider a future article that truly tries to argue the reasons against gold exposure in a sincere fashion. It could be a difficult exercise for me, since I believe that most of the tenets of a case against gold exposure are based upon myths, but there are some issues like volatility, the lack of a free market, etc. We'll see where that one goes, and when the time comes I'll hit you bloggers up for some thoughts. :)

Remember, we don't all have to agree ... we just have to respect each other. :)

Fool on!

32 Comments – Post Your Own

#1) On June 09, 2009 at 5:56 PM, speedybure (< 20) wrote:

From what I can guage in overall feeling, people tend to dismiss these metals solely due to the lack of education and history. This tide will turn when gold break 1200, 1500. 

Just like the Nasdaq, Housing and most recently an overall bubble in the market as a whole, I bet these metals will at some point fall victim to yet another bubble. When you find anyone and their mother agreeing is the point where a bubble exists or about to created. 

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#2) On June 09, 2009 at 6:07 PM, XMFSinchiruna (27.56) wrote:

speedybure

As Jim Rogers said to me in an e-mail a few weeks back:

"The worry will be when everyone agrees with these views of mine. Once they agree with these, I hope I will have moved on to whatever will be coming next."

I responded to him by pasting a blog comment I had made that afternoon:

"The inflation trade IS a crowded trade, but I believe that's because it's backed by the fundamentals. For that reason, the crowded nature of the trade will affect the dynamics, but not the direction of the trend. This is one reason why I've been suggesting that we'll see increased volatility on the commodities and currency trades coming up ... perhaps even mind-blowing volatility ... but the direction of the dollar is the one thing I feel I can forecast with trenendous and objective confidence."

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#3) On June 09, 2009 at 6:22 PM, 100ozRound (29.43) wrote:

Interestingly enough, when I clicked on the link, a targeted ad for GLD popped up; and after reading your article, I couldn't help but chuckle a bit at it...

Nice write up!

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#4) On June 09, 2009 at 6:32 PM, binve (< 20) wrote:

Sinch, As always, awesome post and awesome write up! Fantastic :)

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#5) On June 09, 2009 at 6:35 PM, XMFSinchiruna (27.56) wrote:

Following up on that thought, bubbles occur where market movements are not built upon fundamental drivers. The housing bubble had no foundation because it was built out of thin air (toxic leveraged credit). The dot-com bubble popped (in part) because the internet never proved as profitable as speculators imagined. The rise of precious metals over the next few years, however, has a declining dollar as a solid bedrock of foundational support beneath the move. Because it is supported by the fundamentals rather than driven solely by speculation, leverage, or other market-bending contaminants, I believe that gold and silver will indeed never become a bubble. Volatility may become truly massive as speculators are driven in and out in succession, but underlying those painful corrections will remain a steady advance of the multi-year bull market. 

Again, the crowded nature of the trade may affect the dynamics quite drastically, but where such movements are fundamentally based, that condition will not affect the direction. Only a substantially repaired U.S. balance sheet and a restored USD can achieve a reversal of the precious metals bull market. 

Speedy, you have the venerable Jim Rogers on your side with your thoughts about a potential gold bubble, but in this case I respectfully disagree with you both. :)

For context, please see also my blog comments from last year when Fools were coming out of the woodwork to declare that the gold bubble had popped when the correction hit in March 2008:

 

Gold bubble popping

"First, gold is not a bubble... bubbles are fundamentally weak markets that gain lofty valuations through idle speculation and then come crashing down to earth.  The housing bubble was a bubble because the equity people presumed as real was but illusion."

'Gold is the opposite... it is fundamentally strong, and is enjoying a 6-year secular bull market as a response to the housing bubble and everything else that's broken in the U.S. economy.  The billions of dollars that the Fed is printing to prolong the inevitable de-leveraging of the financial markets is the strength of gold going forward.  To presume an end to the gold bull we would have to see a meaningful reversal in the dollar, and the puny little recovery there in the past few days is wholy unconvincing.  Show me meaningful technical and fundamental support for the dollar, and I'll concede the run is over.  But I'll save you the trouble.. there is nothing supporting the U.S. dollar!"

 

GMX's post from March 20   :)

"I respect everyone's view, and I can see why this correction might look like the end of the bull as you're watching it unfold, but I advise anyone else thinking to run from gold and silver to think carefull about the underlying fundamentals that drove the bull in the first place, and whether you have seen a real reversal in those."

 

And here are my more general thoughts regarding the importance of using the word bubble with extreme caution. The concept can lead to some very deep misunderstandings if used incorrectly:

If the government wants to step in and limit something, they should place caps in who can use the word bubble and in what contexts.  Overuse of the word bubble is endangering the proper functioning of the markets, and threatening to dull the intellect of the investing masses, causing them to jump off the ship of the long-term secular bull market in commodities and into the shark-infested waters of... well... everything else.

I can't stand the word bubble!!!  I just performed a detailed statistical analysis inside my head, and found that the word is only properly used with predictive accuracy one time in every thousand times the word is uttered.

The 'bubble' travesty is closely related to the tragic misuse of the words oversold and undersold, overbought... etc.  How many pitches claim "this stock is way oversold, therefore it's cheap"?  These are incomplete thoughts, and often borrowed from the headlines or perhaps the Fast Money dudes.

I went through all this 'bubble' talk crap with gold after it corrected in mid-March.  Not to mention this one.

We are entering a phase of the oil bull which I believe will be characterized by increased volatility.  Long-term, the global competition for a finite resource will lead prices well beyond $150 to stay... but in the short-term the moves will be dramatic in both directions, IMO.  The same can be expected in all the commodities as the bull progresses... increased volatility will be a general trend.

 

If nothing else, I hope Fools will appreciate the consistency of my views on these topics. :)

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#6) On June 09, 2009 at 6:38 PM, rofgile (99.32) wrote:

Are there any gold miners that are environmentally safe / friendly?  I am quite anti-mining (at least in real life investing, I have at least two platinum/palladium mining picks in CAPS).

I think this is my biggest qualm with actually having anything to do with gold, is that from all I've read, the mining practices usually are quite terrible on the surroundings.  (amalgamation, etc) - perhaps in the US/Canada the groups involved might have better reputations than in latin america or new guinea.

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#7) On June 09, 2009 at 6:53 PM, AvianFlu (32.36) wrote:

It is not so much that gold will be going up, as the fact that the dollar will be going down. The increase in the quantity of gold in the world increases about 2% a year thus leading to a tiny amount of gold inflation. However, the increase in the money supply has been substantially greater than that. Consequently, it will require more of the deflated dollars to buy the same quantity of gold. If the fed ever begins acting responsibly this situation could reverse, slow, or stop, thus making gold a poor investment choice. In the near term I don't see that happening. The number one concern for me right now is capital preservation and that means getting rid of US dollars in favor of something less likely to lose value.

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#8) On June 09, 2009 at 7:01 PM, peachberrytea (64.62) wrote:

@ Sinch

Because it is supported by the fundamentals rather than driven solely by speculation, leverage, or other market-bending contaminants, I believe that gold and silver will indeed never become a bubble.

I don't completely agree with this. As we've seen with oil and agriculture - these "bubbles" popped even though the underlying fundamentals behind each of these really hasn't changed. Oil yes it has changed in the short term while industrial demand is down but on the other hand oil exploration has been hit too, so based on this you could argue the fundamentals are even better for oil now. Ag - you could argue that the fundamentals haven't changed (population is still growing, food inventories are still being drawn down), and again due to underinvestment. So both these "bubbles" have popped even tho the fundamentals support their long term upward trend.

The point I'm making here is I believe that we can't predict short term movements in the market using fundamentals. The two can be decoupled in the short run. Gotta give credit to Mr. Market's mood swings and the power of the speculator :)

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#9) On June 09, 2009 at 7:05 PM, XMFSinchiruna (27.56) wrote:

rofgile

I'm sorry to report that gold mining is everywhere an environmental travesty. Denuding vegetation, excavating massive pits in some of the most beautiful corners of the globe, often releasing cyanide, mercury, or arsenic and other nasty elements into nearby rivers and streams even with careful site designs in place, and collectively burning barely fathomable quantities of fossil fuels.

This is something I battle with personally. As an applied anthropologist, I spent years working among tribal communities of the Amazon rainforest in areas that were heavily impacted by oil exploration. In Costa Rica, I volunteered for 2 years to promote efforts to save an area of primary rainforest when all the surrounding lands and had been destroyed by intensive cattle farming. I am a lifelong defender of Mother Nature ... and yet I am heavily invested in gold and silver mining stocks. It is an inner conflict that I still have not adequately resolved within my own psyche.

Some miners are more sincere in their efforts to minimize deleterious impacts of their activities than others, but none are benign. Some of the miners who hold claims on indigenous tribal lands seem to have developed a more sensitive culture to these issues.

Sometime when I have more time, let's discuss individual miners that appear to be striving for best-possible practices ... but in many cases I think we'll find even that is often just a whole lot of empty PR. 

Thanks for bringing up an extremely important and personal issue for Fools to consider.

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#10) On June 09, 2009 at 7:05 PM, speedybure (< 20) wrote:

Jim Rogers is the real Warren Buffet. Sure Buffet did extremely well the last 40-50 years, but that was all in a bubble economy (post bretton woods). It has taken the 3 and a half decades of squandering capital (foreign capital I might add), to bring the dollar on the brink of collapse.

Rogers on the other hand will do extremely well, not matter the climate as he is schooled in Austrian Economics (which I say with 99% certainty as he has been spoken more and more at the mises institute of late). This will allow him to flourish the rest of his investing career because he is .0001% that understands real economics and the role it plays in the equity and commoditty market. 

Nice Post

-Cheers 

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#11) On June 09, 2009 at 7:13 PM, StopLaughing (< 20) wrote:

1. gold will have value as all major paper currencies are depreciating (some faster than others).

2. gold and other hard currencies have value in medium levels of chaos. In really extreme conditions water, food, security and other necessities tend to be the ultimate currency. Gold is a mechanism to preserve or create wealth when chaos breaks down the viability of paper currencies. However, it is only a bridge back to times of greater stability.

3. Gold is like an insurance policy for a lack of faith in paper currencies.

4. I do not expect things to get bad enough to own bullion. The miners are probably sufficient to bridge the current and near term chaos.

5. Gold prices will be volatile as governments, the IMF and other sources sell gold and protect thier paper. Governments could make it illegal to own bullion (Roosevelt). Raw gold and dust may be a better survival mechanism.

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#12) On June 09, 2009 at 7:27 PM, XMFSinchiruna (27.56) wrote:

peachberrytea

Once again, the word bubble is practically useless because every investor seems to have a different construction within their own minds of what the phrase connotes.

If the fundamental drivers continue to press upwards while prices go down, then that market weakness can not be termed a bubble ... that is called a correction. Words matter. :)

"So both these "bubbles" have popped even tho the fundamentals support their long term upward trend."

Commodities were impacted by a systematic deleveraging event that ultimately did remove some of the fundamental foundation for commodities like oil and base metals by eroding demand in the process, but to term that once-in-a-century type of deleveraging event a 'bubble' ... again ... is in my opinion a most unfortunate misuse of the term that offers zero insight into what really happened. By definition, a bubble that pops can not subsequently be reinflated, and yet we are already witnessing the gradual recovery in things like oil, agriculture, copper, etc.

The point I'm making here is I believe that we can't predict short term movements in the market using fundamentals. The two can be decoupled in the short run. Gotta give credit to Mr. Market's mood swings and the power of the speculator.

I agree with your last statement 100%. I have been stating the very same thing consistently. What we have here is an issue of semantics, but in this case I believe it is an important one. I believe that use of the word bubble to discuss short-term dislocations within a multi-year bull market for precious metals, for example, is completely counterproductive. Words are supposed to contribute to our understanding of the things they describe, while in this case all this word succeeds in doing is confusing people.

Think long and hard about the word and how it's used, and I bet you'll end up agreeing with me that we can find more helpful terms to use in discussing what has occurred in commodities and precious metals during these volatile times. If every short-term downward movement is a bubble, then what's the point of the word?

I have argued this point at length here in the blogs, and have given the matter extensive thought. I hope you will consider re-evaluating the usefulness of applying the word in some of the contexts we've discussed ... otherwise we might be headed for a communication bubble. ;P

 

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#13) On June 09, 2009 at 7:32 PM, jerryguru69 (95.13) wrote:

Thanks for a good blog dealing with the naysayers. I find it more informative than your original ones cheerleading for gold.

I have been following the price of gold since the Carter Administration, and seen the per oz price go up and down, seemingly w/o reason or pattern, defying all logic or analysis. Frankly, I am scared of gold and have never invested, despite being tempted a couple of times when it was at $300 per oz. There are so many factors that go into the price of gold, I find the price moves over both long and short term to be highly illogical (cue Mr. Spock's raised eyebrow).

All I can tell you is that it totally screwed up my coin collection's gold coins: prices per coin are no longer related to numismatic factors.

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#14) On June 09, 2009 at 7:46 PM, peachberrytea (64.62) wrote:

@ Sinch 

The inflation trade IS a crowded trade, but I believe that's because it's backed by the fundamentals

Hmm I've got a question about this. I was reading an article by Jeremy Siegel here: http://finance.yahoo.com/expert/article/futureinvest/168150

What he's saying (towards the end of the article) is that yes, the government has been printing lots of money. But whether inflation actually occurs (and to what extent) depends on the govt's ability to pull that extra money out of the system, once the economy's back on track.

So my question is: in your opinion just how capably do you think the govt will control inflation? How much liquidity can the govt take back? Do you foresee a scenario where the govt will be able to keep inflation low?

My opinion was that there'll be inflation but the govt will keep it to reasonable levels. I didn't believe in hyperinflation because I have faith (just faith, i don't understand macroeconomics well enough) that the govt will find a way to fudge it somehow and avoid hyperinflation. But Siegel seems to be hinting that even inflation is not at all guaranteed and tho I'm not sure how, I'm entertaining that possibility anyway. Like to hear your thoughts on that Sinch.

And thanks btw for all the great posts. I'm another one of those readers taht follow your blog but don't say much..your posts have been just so incredibly informative and has added so much avlue to my investing. So, my thanks!!

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#15) On June 09, 2009 at 7:50 PM, dudemonkey (37.71) wrote:

I got a shout-out from TMFSinchiruna.  I'll check that off my list of good things to do before I retire! 

I appreciate the fact that you've taken the time to address concerns about investing in gold.  I see where you're going with your views, blogs, and articles, and I definitely do NOT disagree.  The perspective I'm coming from is as a long term investor whose system is based around discounting future cash flows.  This system is not sufficient to value gold and it has trouble valuing gold miners due to the volatility in the price of gold.

So, my objections/challenges were an attempt to understand how to apply some kind of valuation technique to gold. Without that, it's tough for me to justify a purchase.

In terms of hedging against inflation, I'm choosing copper and oil because I understand the drivers of their prices better so I can make better estimates of their future value/the future value of companies that produce them.

Thanks!

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#16) On June 09, 2009 at 8:02 PM, peachberrytea (64.62) wrote:

@Sinch 

Think long and hard about the word and how it's used, and I bet you'll end up agreeing with me that we can find more helpful terms to use in discussing what has occurred in commodities and precious metals during these volatile times. If every short-term downward movement is a bubble, then what's the point of the word?

Hmm thanks for the clarification. I've gotten used to thinking of oil and ag and such from last yr as bubbles.. mebbe it's because of their connection to speculation and such. But you're compeltely right - these are short term corrections on a long upward trend, not a bubble that just pops and disappears.

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#17) On June 09, 2009 at 8:06 PM, masterN17 (< 20) wrote:

Hello, I have been reading your articles concerning gold for a while and I find them incredibly informative.  I especially appreciate your responses to common arguments against buying gold.  Thank you for the content.

 Best,

- N 

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#18) On June 09, 2009 at 8:20 PM, XMFSinchiruna (27.56) wrote:

peachberrytea

There is no functioning market for the toxic derivatives taken onto the Fed's balance sheet as "collateral" for most of the liquidity injections, so no, I have no faith whatsoever in the government's ability to remove liquidity on suchg a scale in any kind of orderly fashion.

Second, I addressed the issue of inflation in the Top 10 Reasons to Hold Gold:

6. Inflation Looms
Of all the reasons to hold gold, the debate over potential scenarios for the onset of inflation remains the most unnecessary obstacle to understanding gold's outlook. We must not let the inflation debate muddy the waters for gold, since frankly, all scenarios are now supportive of gold. Whether you're convinced we'll see runaway hyperinflation, a deflationary spiral, or stagflation, the direction for gold is unaffected.

Washington has shown its cards, Fools. A deflationary spiral clearly was deemed the most unacceptable consequence of this crisis, resulting in an implied guarantee that further economic contraction would be met by ever-increasing sums of stimulus. In this policy environment, therefore, inflationary forces do not hinge upon economic stabilization. While it's true that recovery could exacerbate inflationary forces as liquidity starts circulating through the economy, inflation can certainly take hold without it … and I believe it will. I view looming inflation as a currency event rather than an economic event, and see stagflation as a likely outcome. No matter which scenario unfolds, though, this environment is ripe for gold.

I do not see any plausible scenario where the U.S. government will be able to control inflation or keep it low. The list of experts that agree with me on this stretches out for miles, including Nouriel Roubini, Jim Rogers, Warren Buffett, etc. Substantial inflation is 100% inevitable given the actions taken to date, and especially considering the looming deficits and further quantitative easing that will be required before this fiasco has run its course.

I know it's tempting to believe that the government is in control of this situation, but in my constant analysis since the crisis began I have concluded the opposite ... they have lost control, and the hail-mary attempt to patch the holes will succeed in nothing more than buying them some time. The derivatives market will deleverage one way or another. Inflation will be substantial, though I'll leave the semantics of whether to call it hyperinflation or stagflation to the historians. 

There are a lot of theories out there, and I understand it's tempting to latch on to the more optimistic ones, but just be sure your final conclusions ... whatever they are, are based upon rigid analysis rather than hope.

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#19) On June 09, 2009 at 8:26 PM, uglyguy (< 20) wrote:

Just waiting for more buyers.   This market needs something big to kick it into $1000+  Like China backing money by gold (silver).  Not even inflation will take this "safe-haven" up.  

Round of deflation yet to continue to year end.  Then the inflation plays guys.  

You have seen nothing yet as the real-estate market downward impulse part two hits later this year coupled with double digit unemployment.   

The flight will be to....  Be determined.   

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#20) On June 09, 2009 at 8:36 PM, XMFSinchiruna (27.56) wrote:

uglyguy

You have seen nothing yet as the real-estate market downward impulse part two hits later this year coupled with double digit unemployment.

I agree with this part of your comment, but as to the first 2 sentences I implore you to consider that the inflation we will see is a currency event rather than an economic event, so it is indeed possible to have currency-based inflation even as economic weakness creates significant downward pressure on many asset categories (like homes, for i.e.).

 

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#21) On June 09, 2009 at 9:30 PM, StopLaughing (< 20) wrote:

As I was driving home I heard an interesting premise. The $ is dropping because commodities are going up (inflation) not the other way around.

I am not sure I agree but the causality could be dual to some degree. 

There are a lot of Bears grumbling about market manipulation. Just for the sake of argument if you were going to mess with a market wouldn't it be a lot easier to move the spot and oil futures market up than the S&P or the $ and related currencies?

Think about it for a minute. Is not there enough power between OPEC, Russia and other oil states to more or less costlessly hedge the price of oil up. Certainly oil (more than the stock market) is vastly over priced based on fundamentals. If oil goes up, inflation fears go up, gold goes up, the $ goes down, that puts the fed and Obama in a bind. The cartel ect. could make money on the movement of oil, the market, the paper currency futures AND foul up the US, at least in the short run and maybe lay the ground work for dethroning the $ in the longer run. 

It basically is a win win for the oil interests and the timing makes it harder for Obama to put a tax on carbon (oil consumption). More than anything else the cartel fears viable alternative energy sources.

Just a though. Comments from people with superior insight is welcomed.

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#22) On June 09, 2009 at 11:19 PM, speedybure (< 20) wrote:

All commoditties are created different, for example i believe oil is going to the moon for one simple reason: We have reached peak oil already, even those with a bias agree to that. But you are right to a point, weakness in the dollar will push these commoditties further. This, however, often acts to augement large moves in commoditties.

It always comes down to supply and demand, with the exception of gold. Gold unlike silver is a pure inflationary hedge and has been recognized and accepted as a worldwide currency for  well over 5,000 years. But even the demand for gold from other countries has made this more than just a play on the weakness of the USD. Henry Hazlitt wrote a great book in 1974 "From Bretton Woods To World Inflation", whhere he makes a very bold forecast the current currency crisis would be inevitable.

We all should thank Bretton Woods for the current state of the nation, most notably the USD. Bretton Woods made it possible for us to accumulate 12 trillion in foreign debt (which we sqandered) and foreign nations would use our currency to trade amongst each other. A few problems willl arise when foreign debt is redeemed(if we don't pay it back, we will have over 500 billion in interest payments a year just by itself). The next problem will arise when foreign nations abadon the USD all toghether when it comes to trade as an enormous amount of currency will flow back to the U.S (the majority of US dollars is held outside the US).

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#23) On June 09, 2009 at 11:28 PM, ralphmachio (26.66) wrote:

If all equations were true when you inverted things, My time machine would have made these arguments obsolete.  I would already know if a conflict will push oil to extreme prices, or some other unexpected political situation. 

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#24) On June 10, 2009 at 1:53 AM, checklist34 (99.73) wrote:

here's my argument against gold, its short, its simple, it lacks utterly any shred of macro economic analysis or dogma or sentiment, and as far as I know its never, not once, failed in history:

everybody is never right.  in history how many times has Mr. Market (in all of his various personas, there are, after all, many markets) rewarded mass opinion? 

Not in tech in the late 90's, when Warren Buffet and many others were widely decried as fools for not getting on the bandwagon.  Not in commodities in 2008.  Not in real estate in 2004.  Not in the end of the world due to forever upward spiraling oil prices in 1974. 

Gold has reached an almost epic level of approval.  I am not aware of anybody throwing out the argument that gold is not a good investment here and now in months. 

And that is my argument, as promised utterly undogmatic and lacking in economic commentary.  "Everybody" can't be right. 

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#25) On June 10, 2009 at 8:07 AM, XMFSinchiruna (27.56) wrote:

checklist34

1. You can't ignore the fundamentals when they're staring you in the face. :)

2. I assure you, everybody is not in gold. It is still a huge minority of investors that have gold exposure. I addressed the issue of the crowded trade above, though, and still the fundamentals come into play. This CAPS microcosm is FAR more aware of gold than than the average investor. Some members of my own extended family come to mind ... and they have me as a resource! :P

3. It's dangerous to be in the middle of the herd towards the end of a fundamentally-driven cycle ... but until the USDX reaches well below .60 we remain FAR from the end of this currency event.

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#26) On June 10, 2009 at 8:30 AM, catoismymotor (< 20) wrote:

Chris,

Thank you for this article and your blog. I do have a question about the best way to invest in gold. Is it better to invest in a mine, like AUY, JAG or AZK. Or is it better to invest in a company that keeps physical gold on hand, like CEF? I have to admit that I like the idea of CEF better than owning a mine. Any input you have to offer is welcome.

Cato

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#27) On June 10, 2009 at 8:49 AM, h2ound08 (< 20) wrote:

i second cato, what is the best way to invest in gold right now, in your opinion?  i didnt know (still dont) know much about gold, but i found your writeups and comments in this blog very useful and informative, thanks for presenting this.

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#28) On June 10, 2009 at 9:33 AM, XMFSinchiruna (27.56) wrote:

catoismymotor

I responded to your comment on the article itself, but I'll paste my response here as well. Thanks for the question.

Cato,

Those choices would serve different purposes within a portfolio. CEF or other bullion proxies (remember that CEF is split about half/half between gold and silver, which I consider a plus, but something to keep in mind) serve as that more traditional safe haven asset that will serve to counteract the erosion of wealth which occurs with substantial inflation. These proxies provide a solid foundation for precious metals exposure, while miners provide the vehicle for capital appreciation in a rising price environment. Please see my prior articles for caveats about the tremendous potential volatility and the fact that leverage for the miners works in both directions, but because I am convinced that the long-term upward trend for precious metals has considerably more room to run as the dollar struggles, I consider carefully selected miners a safe means of adding profit (net of inflation) to the safe-haven benefit of gold exposure.

My prior articles will clearly delineate some of the more carefully vetted miners that I consider high-quality, low-risk producers. Please select miners carefully, considering geography (political risk), balance sheets, ore grades, mining costs, growth prospects, etc., etc.

In my opinion, the best way to invest in gold is through a multi-tiered approach that divides a given allocation amongst bullion proxies, miners of various size-ranges (juniors, intermediates, and majors), and perhaps a royalty company. If my allocation were too small to make such an approach practical, then at this stage I suppose I would favor one of the intermediate miners.

Fool on!

 

 

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#29) On June 10, 2009 at 10:01 AM, catoismymotor (< 20) wrote:

Chris,

Thank you for your council. I now have a better idea of what steps I next need to take.

Cato

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#30) On June 10, 2009 at 10:59 AM, ocsurf (< 20) wrote:

Great post Sinch!

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#31) On June 10, 2009 at 11:38 PM, silverincite (36.96) wrote:

catoismymotor

I've been looking into Aurizon Mines (AZK) lately and really like what I've seen so far. They have the cashflow to push their exploration and development agenda and seem to have a very good plan. They have made some pretty good use of option leases on properties they own and operate in a very stable district (western edge of Quebec).

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#32) On June 12, 2009 at 12:51 AM, Tastylunch (29.37) wrote:

TMFSinchiruna

Wait you actually correspond with Jim rogers?

Wow that's seriously impressive. Kudos to you Sinchi

Re: environmental conflict, that's part of the appeal of ag to me. Should benefit from similiar trends yet not quite as destructive (but sitll plenty disruptive)

 Alos less wory about seizure and all that not so fun stuff if the dookie really hits the fan.

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