Monday, November 30, 2009

Good to See Skepticism and Ignorance About Gold Persist

In Gold Buyers Nip at Ultimate Emotional Experience, Bloomberg.com's David Pauly dumps on gold in a big way, also quoting the great investor John Neff as saying that he's never been interested in anything gold-related. The article begins:

Why is it no matter how much the world advances intellectually and technologically, people keep speculating on gold?

John Neff, who managed Vanguard Group’s Windsor Fund for three decades, once offered this take on the precious metal: “It’s not an investment, it’s an emotional experience.”


Mr. Pauly concludes with the (sorry to say) almost idiotic thought that gold buyers are deluded that the gold standard is still in effect:

Gold long ago was used by nations to balance their trade books. When the U.S. bought more abroad than it sold, it paid the difference in gold.

It’s comical to think of that today. Once the U.S. economy gurgles again, the Fed’s $300 billion in gold would only cover about six months of the nation’s trade deficit.

European and Asian companies don’t collect dollars for their goods because they expect a payoff in gold but because they think the currency has its own value.


Neff, 78, still manages money for himself and his family in suburban Philadelphia. “I’m still in the hunt,” he says.

The hunt has never taken the veteran investor anywhere near gold. While the experience has been exhilarating lately, “I’m not attracted to it,” Neff says.

If only others were so sensible.

Sorry, Mr. Pauly. Believe it or not, gold really is a monetary metal. The IMF says so. The U. S. says so. China says so. Russia says so. And a kicker for gold is the possibility that it becomes more overtly part of the world's monetary base in the near- to mid-term.

Yours truly owns physical gold and a gold ETF ("GTU") with NO exhilaration. Gold has no intrinsic allure for me. Owning gold has nothing to do with peak experiences of any sort. It simply has to do with preservation of purchasing power. If a bit of speculative capital gain over and above preservation of purchasing power comes my way as an owner, and I sell to realize the gain, that's fine. But it's all about degradation of fiat currencies: money-printing. Gold must be torn from the earth and unlike silver or platinum, it is rarely actually consumed. You know the arguments. It's been around for millenia as a form of portable, durable wealth and may stick around for millenia more, machinations of central bankers notwithstanding.

People who get exhilarated from owning one type of financial asset are, as Jules Steyn might have limned, not the luckiest people in the world. They need to get a life, one might say in more modern lingo.

It's good to know that there are probably plenty of David Pauly's out there. Perhaps not he, but others may fuel a possible surge to overpriced levels of the yellow metal by jumping in at higher levels to fuel a momentum play (which to be sure has begun but hardly to excess).

That said, most of my assets (by far) are not in metals but in dollar-denominated instruments. And there's no exhilaration owning them either. Just business.

Copyright (C) Long Lake LLC 2009

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