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A New Year For Gold

In gold’s Dark Decades from 1981 to 2001, any public mention of the ageless yellow metal was more likely to be punitive than positive. But things change, witness a recent Barron’s article entitled, “Golden Opportunity?” - a question which is answered entirely in the affirmative


This article was first published 
January 2, 2006
 


This article by Robin Goldwyn Blumenthal occupied pages 12 and 13 of the December 26th, 2006 issue of Barron’s, pictured a goose and a couple of golden eggs, and was basically an infomercial for gold as an investment. The sub-headline reads as follows:

“After doubling in the past five years, to $500 an ounce, gold may still have plenty of room to run. One bold market seer thinks it’s headed to $3,000. It could be time to grab a pick and shovel. We size up the best ways to play the new gold rush.”

This positive treatment of gold by a major popular financial magazine is remarkable in that it assumes that the increase in gold prices over the past four years is no fluke, and further projects an almost unlimited future for gold prices, quoting various analysts as to their predictions:

“…James Turk, founder of GoldMoney.com, a well-regarded Internet site for buying and selling gold, expect prices to top $850 an ounce next year. He’s worth listening to: in the fall of 2004, Turk correctly forecast that gold would break $500 in 2006.”

Trey Reik, who manages an equity fund focusing on mining shares, uses a scenario of $1,000 gold to compare the likely returns from mining companies versus the Exchange-Traded Fund GLD.

And the $3,000 gold price cited in the sub-headline is part of an analysis by Marc Faber, a Barron’s Roundtable member and a regular contributor to the magazine.

These gold-price predictions are melded into an executive summary posted next to the article, entitled “The Bottom Line:”

“Gold could exceed $800 next year, say some savvy pros. The easiest way to participate is through StreetTracks Gold Trust, and ETF that’s pulled in $3.9 billion in just a year.”

As Barron’s is essentially a popular magazine for investors, the gist of the article is how the reader should participate in the ongoing gold boom. The question of ‘if’ the reader should participate is never even asked. Rather, the article methodically explores the ins and outs of gold stocks, gold funds, ETFs and the ownership of physical gold itself.>br>

Not only is the assumption by Barron’s that their readers should participate in the gold market rather ground-breaking, but also gold price citations such as $850, $1,000, $2200, and $3,000 a few years ago would have been considered the sort of wacko predictions voiced only by doom-and-gloom gold-bugs.

But, of course, gold is no exception to the rule that once you double the price of anything, people start to sit up and take notice. Gold, a commodity that was considered an obsolete dinosaur among financial mavens when trading in the $250s, becomes of keen interest at $500+.

So is the old saying true, that everyone loves a winner? It would certainly be a bad sign in itself if everybody was in love with gold. Surely there is someone on the bearish side of the equation. Where are those who are skeptical about the old yellow metal keeping themselves these days?

Where, in short, is Andy Smith?

He’s now at Ridgefield Capital in London, according to a roundtable discussion about gold’s recent price rise published in the Business Times Singapore on December 17th. Other participants included Marc Faber from the above-cited Barron’s article, Robert Pringle of the World Gold Council, and the always-quotable Mr. Smith.

If you’re not familiar with Andy Smith, think of him as the poet laureate of the gold bears. He has a wicked way with the English language, and much of what he says is provocatively aimed at the comfortable biases and assumptions held by many traditional gold bulls.

A lot of pro-gold people tend to get mad at Andy because, in some ways, he is attacking their personal belief system. We think that Andy is always worth listening to because, whether you agree with him or not, he always takes gold seriously. His commentary is often more entertaining than anything coming from than that of many of gold’s cheering section.

The full text of this discussion can be found at 321gold.com, or at the Business Times website. A representative sample of Andy’s comments follow:

“Gold has always been money to half the world outside 'The West', whose financial choices are constrained, and whose lives are more 'nasty, brutal and short', as Hobbes once put it. Are we in 'The West' frightened or financially straitjacketed enough, even after 9/11, to think this 'Eastern' about gold? I don't think so. In fact, the chances are that as choices in 'The East' progress from 'life or death' to 'which plastic card is best', gold's monetary heartland will be hollowed out. China, for example, consumes less gold now than a decade or two ago, even as living standards have tripled. 'Blame' the progress serum of banks, equity markets, life insurance and low inflation. In 'The West' champions of gold born again as money are either buyers late in the rally (needing a profound reason for their tardy participation), visceral opponents of the 'American Way' (investing with their anti-Bush/dollar biases, not their heads), or believers in the original sin of paper money (nostalgic for a flatter earth).”

Make note of Andy’s comments here, as we enter the fifth year of gold’s bull market. One of these days, maybe he’ll be right!

Happy New Year! -Richard Smith

 


 

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