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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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