Tuesday, March 17, 2009
A fool and his/her gold soon part
This link purports to "bust financial myths." My favorite, being a temporary gold bug, is below:
MYTH 5. Gold is the best place to hide in a lousy economy. In early February, an ounce of gold traded for $910. That's just where it sat a year ago, when world economies weren't so bad off. But foreign and domestic stocks, real estate, oil and riskier classes of bonds have all tanked since, and now gold looks -- ahem -- as good as gold. However, gold does not typically benefit from a recession. As inflation slows, people buy less jewelry, industry uses less gold, and strapped governments sell reserves to raise cash.
Truth: Gold tends to rally in prosperous times, when you have inflation, easy credit and flush buyers (kind of reminds you of real estate. . . ).
Misinformation like this, intentionally spread, should be illegal. I don't even know where to begin. Gold holds its value over one year while everything else tanks 50-75% so you should sell it? Gold does not benefit from a recession?! Try your history books or just look at my previous investigation into the pendulum between gold stocks and the general stock market in our country over the past 100 years. People buy less jewelry and this rocket scientist thinks this will make the gold price go down? Try investment demand. When governments sell their gold reserves, the gold price goes down? Only when gold is in a bear market (when any news causes a sell-off), which it clearly is not.
The gold and gold stock bull markets have a long way to go. Once jag-offs like the one who wrote the piece above in the mainstream financial press tell you to sell all your regular stocks and just buy gold and gold stocks, then we'll be near the top of this secular gold and gold stock bull market. The continued misinformation and lack of education/knowledge about what drives gold and the gold miners higher just means more buying opportunities for those of us who have stopped drinking the Kool Aid. The Dow to Gold ratio will get to one and probably below it and the minimum upside target for gold is $2000-2500/oz., with the potential to reach five figures. The best part is that the biggest moves in the gold price and gold stocks are yet to come!