Monday, July 22, 2013

Is Gold Under Or Overvalued?

Fig. 1 Gold Price in $US, Daily 2008-2013   FINANCIAL SAFETY SERVICES DISCLAIMER

"Is gold cheap enough to buy yet? "   asks John Waggoner at USA Today:

Excerpt: "You're cheap. You're so cheap that your clothes went out of style in the Roosevelt administration. Teddy Roosevelt's administration. Cheap. When someone asks you for three cheers, you only give two.
So when you look at the price of gold and notice that it's nearly 35% off its record high, you're intrigued. Is it cheap enough to buy yet? "

Meanwhile, back at the ranch.....

Is Gold Under Or Overvalued?" asks Mark Hulbert of The Hulbert Financial Digest. 

Excerpt: "Consider: Investors who bought gold at its January 1980 peak of $875 an ounce are today still below water in inflation-adjusted terms. They even were showing a loss two years ago when gold was trading for more than $1,900. "

Fig. 2: Gold Price in $US, Daily 1968-2013  

The Bald Truth

Of course the bald [yet un-admitted] truth is that neither  of them know where the price of gold will be next week, next month, or next year, and neither does anyone else! 

I don't care if the person claiming to know the future for gold is a famous investment advisor, an economist [regardless of "school"], a central bank spokesperson , an astrologer, or a  government bureaucrat. 

None of them have, or can have prescient knowledge of how the sum total of the subjective and changing valuations of literally billions  of individuals will effect the value of anything relative to anything else tomorrow, next week, next year, or 10 years from now. 

And the situation is no better for stocks, bonds or any other class of  investment asset either! 

A Scam

The truth is that the whole "prescient investment advisor"  profession is a scam.  

For fundamental reasons that I am not going to bother to try to explain "for free" in a blog post, the economic future is, and must remain, almost entirely unknown and unknowable

If you believe you have found an advisor who has predicted the future successfully, be warned, more than likely,  as soon as you start to follow his/her advice,  they will lose their magic touch, whether they claim to be a gold guru, a stock market guru, a bond guru, a "technical analysis guy", a "fundamental analysis guy", a tea-leaf reader, or whatever. 

Both of the articles linked to above are "mainstream", and not "gold bug" or "hard money" biased. Of the two, Mr Hulbert probably has a higher credibility within the investment community purely by reason of his investment review newsletter " The Hulbert Financial Digest" which has tracked the performance of over 160 investment newsletters since 1980.

However, as far as I can see, and somewhat ironically, Mr Waggoner of the ultra-mainstream USA Today gives far sounder advice- he at least tells the reader to hold 10% of their long-term portfolio in gold bullion, while Mr Hulbert reveals his complete misunderstanding of why gold bullion is a necessary part of a long term savings plan by advising you to "hedge against inflation" by "Investing in the U.S. Treasury’s inflation-protected bonds, or TIPS,". 

 A " Goldbug" Speaks

And just to be "fair and balanced", here is a link to an article by a "gold bug" :

Excerpt: "Gold may well go plunging down but will ultimately come back up and go well beyond previous levels. $2000? $4000? $6000?.."

[Hint: this writer, no differently from the other two linked above, and no differently from anyone, anywhere in the world, has no prescient abilities that would enable him to be able to accurately forecast the future price behavior of gold in the general market either! ] 

The Bottom Line:

The key to an effective long term financial safety  strategy and to investment wisdom is to be found in the acceptance of the following realizations/facts of life:

 1] No one class of asset [e.g.  precious metals, bonds, cash, stocks, real estate orwhatever] increases in value in every historically recorded economic scenario[ i.e. inflation, deflation, stagnation, good times/general prosperity ], meaning all of them will rapidly decline in relative value under certain specific economic conditions , and all will increase in relative value under certain specific economic conditions. [And even then, sometimes they will fool us all by temporarily increasing in value when according to the existing economic environment, they should be decreasing in value, or by temporarily increasing in value in an economic environment within which, historically, they have always decreased in value :-0 !] 

2]  No investment advisor, fund manager, economist, bureaucrat, astrologer,  central banker, "successful investor" , or anyone else, can reliably and consistently predict future economic events and  general conditions.


More about "Onebornfree"  :

"Onebornfree", or "O.B.F".  is the generic, 15+ year online business name for my internet persona and various entrepreneurial activities]:

 I am an alternative psychologist and alternative health/fitness consultant ,

Personal Freedom Consultant, 

 a Financial Safety Consultant

and a  musician [singer/guitarist, mostly blues/jazz stylings] and published songwriter.

See also: Onebornfree's  Mythbusters and Freedom Network blog 
[various articles]   

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