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TMFAleph1 (95.68)

The Bull 'n Bear on the Mojave and 'Paper Gold'

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May 23, 2011 – Comments (7) | RELATED TICKERS: GLD , SLV

I don't usually write about things that are not related to finance, but I spent last weekend in the Mojave desert. The trailhead for our hike is accesible by a road off I-40 that is roughly midway between Barstow and Needles. 8-9 mile hike to the camp ground, which was at an elevation of 5,600 feet (we were the only ones there.) The trip only confirmed my opinion that American Southwest is the most beautiful region in the United States. I don't think I've ever seen as many stars as I did on Saturday night (Las Vegas did produce a glow from far away.)

I also learned that there is such a thing as desert tortoises -- I had always assumed that tortoises can only be found next to the sea (or at the very least, near a body of water.) According to the rangers, these tortoises spend 90% of the day under ground.

With regard to financial markets news, the FT's Lex column (which has some of the best writer-analysts at this august publication) published a good piece on gold yesterday. Not surprisingly, they believe that gold is a bubble; however, the main point of the piece is to warn that, due to the development of gold ETFs, the crash -- when it comes -- will be particularly painful. The article is behind a paywall, but it is well worth reading the first paragraph to innoculate onself against some of the conspiracy theories that are going around:

The following news flash will only be controversial to a small, eccentric but vocal slice of the gold investing world: the bullion that backs wildly popular gold exchange-traded funds is real. Ditto for what governments claim to hold. There is no vast conspiracy. What is more, the leading gold ETFs are well designed and have proved resilient even in volatile times.

Enjoy your day!

Alex Dumortier

7 Comments – Post Your Own

#1) On May 23, 2011 at 2:00 PM, TMFAleph1 (95.68) wrote:

If anyone is interested, we were on the Mid Hills to Hole-in-the-Wall Trail. Well worth the trip if you are in the area!

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#2) On May 23, 2011 at 3:47 PM, ffrederick (< 20) wrote:

Brings back memories of when I use to live in the Mojave!  I've been to Hole-in-the-Wall decades ago.  I also remember taking desert studies course(s) from CSU San Bernadino up at the old abandoned resort at Zzyzx.

 

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#3) On May 23, 2011 at 4:03 PM, JakilaTheHun (99.93) wrote:

That's been part of my bearish gold thesis, actually.  Since most of the gold boom is directly tied to the increase in financial products that make gold more easily accessible to the average investor, the crash could be more dramatic than previous gold crashes.

There's really not any reason that gold couldn't fall back under $700 at some point.  Extraction costs for the lowest-cost producers are still well below that price level. 

That said, I have no real view on *when* gold will crash.  With all the troubles in the Eurozone and East Asia that are brewing, I'm not so sure that gold will crash within the next few years.  I see an industrial metal and more generalized commodity crash as more likely.   Gold might fall in such an environment, but continued uncertainty might cushion the fall.

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#4) On May 23, 2011 at 4:03 PM, TMFAleph1 (95.68) wrote:

Nice! Yes, I heard about a town with an odd name around there.

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#5) On May 23, 2011 at 4:12 PM, TMFAleph1 (95.68) wrote:

There's really not any reason that gold couldn't fall back under $700 at some point.  Extraction costs for the lowest-cost producers are still well below that price level.

Absolutely! The mean of inflation-adjusted monthly gold prices since 1971 is $677, and the mean of inflation-adjusted annual prices going back to 1833 is $473. Not to mention that when a bubble deflates, prices tend to overshoot.

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#6) On May 23, 2011 at 4:14 PM, TMFAleph1 (95.68) wrote:

That said, I have no real view on *when* gold will crash.

Anyone who has a strong view on when that will happen is a fool or a liar.

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#7) On May 29, 2011 at 3:55 AM, brizzlekizzle (48.71) wrote:

I remember hearing a member of the house of lords saying that some groups currently have more bullion than he had thought even existed. Unless your a rothschild or the vatican, you probably will get hurt holding gold as well, thats the golden rule, they have the gold, they make the rules kind of thing. However, to the defense of the minority, there are people that bought gold long ago and have only intended on a store of wealth not subject to inflation, and they are doing just fine regardless of the price. My ounce bought at say $360 ish has and always will be a good investment. I think people have gotten very single minded either defending or attacking gold overall, and its not productive in our forums. Anger should be directed at men that run the system, not each other.

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