Wednesday, December 1, 2010

Gold Play

With gold making another run for $1400/oz, should you start buying some if you haven't already? If you already own some, should you start selling? When it comes to policy and politics, I rarely, if ever find myself in agreement with multi-billionaire investor, George Soros, but when it comes to the gold market, I believe he's got this one right. He may be evil from my socio-economic perspective, but he's not stupid.

Soros has called gold "the ultimate bubble" and is, in fact, gradually reducing his holdings. He has wisely, not predicted a top or a time frame for a decline. Bubbles are by nature, unpredictable. I'm not going to call a top either, but there are some fundamental things you should know about gold if you're going to play the game.

It's often said that gold has "intrinsic value". That is, that it has value apart from speculative trading or as a currency. That's true. It has intrinsic value to those who actually consume it, like jewelers and space craft manufacturers. But the market price, at the moment, is not being driven by consumers. It's being driven by investors/speculators and that portion of the price is entirely subjective. Contrary to the old real estate adage, they are producing more gold and very little of it is actually consumed. In fact, one could say the only gold that's truly consumed is that small fraction of production that gets shot into space. Much of it is now being purchased by people who just want to store it, or have someone else store it, simply to make them feel better.

At some point, the guru of the week is going to tell folks it's time to sell. Who is everyone going to sell to? It could be days, weeks or years, but when gold falls it's going to fall fast and far. You may be waiting for a "top". So are millions of other people. Good luck with that. At least it looks cool.

So, what should you be investing in? I'm not an investment adviser, so take this as the opinion of just another member of the Peanut Gallery, but if I were trying to preserve currency, I'd buy inflation adjusted Treasuries. If I'm trying to preserve wealth, I'm buying things that I, or my heirs, can actually use regardless of the economic situation. After all, the true value of wealth lies in how it contributes to your quality of life. That's a call only you can make.

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