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Will the Wall Street Journal Ever Re-Think Gold?
(November 3, 2013) “Rethinking Gold” in the Wall Street Journal Saturday/Sunday November 2/3 edition. Uh-oh, I thought as I fetched the paper up from the driveway. Here comes the full force of the WSJ brain trust, out to pound the very idea of gold, at a time when its price is really down. I don't like this headline word ‘rethinking,’ it can only mean one thing – this is going to be a total hatchet job on gold.

It’s funny sometimes, the silly things that we allow ourselves to be afraid of.

Opening this weekend’s Wall Street Journal to page B7, there appears a beautiful wall-to-wall array of gold bullion bars and coins, displayed conspicuously above the fold – in color no less. Sales of gold bullion are our bread and butter, and that kind of visual in the country’s premier financial publication can’t be bought for any amount of money. Behold the full shiny composite portrait of 33 pieces of gold, our favorite precious metal. And it didn’t cost any of us in the bullion trade a dime.

And judging from the product line-up pictured, our friends at the NY offices of Pamp Suisse have to be happy to see so many of their shiny yellow goodies posing for this grand gold portrait.

“What’s Next for Gold” is the headline of the article by Joe Light, subtitled “After stealing the spotlight during the financial crisis, the precious metal has lost its luster as stock have regained center stage. Is it still a worthwhile investment? We investigate.

The article starts out innocently enough:

“To its fans, gold is an inflation-fighting, economy-hedging, dollar-busting superhero asset class.”

“Lately, it has just been a dud.

This ‘investigation’ quickly turns up gold’s first victim – one John Pierce, an 80-year retiree from New Jersey, who “had heard all the stories about how gold has gone up in the last ten years,” and in November of 2011 spent a few thousand dollars on gold because he “thought it was time to get my feet wet.

Remember the rhetorical question in the subtitle (“Is it still a worthwhile investment?”) - for Mr. Pierce, now down some 20% on his ill-timed purchase, the answer seems to be ‘no.’

Through further sleuthing, the WSJ uncovered yet another retiree who dared to get involved with the fickle metal. In 2003, a Mr. William Peterson, 65-year-old value investor, along with his wife, purchased in excess of $1,000 worth of collectible gold coins. He admits, “The price was going up relatively rapidly, so we thought we ought to be in that area. I felt like I was protecting us from another downturn in stocks.”

In the end, were the Petersons protected? We’ll never know, since their fate after taking the plunge in 2003 isn’t revealed. Maybe it worked out okay for them, since gold prices that year averaged less than $365.

Beyond learning from this article about the potential financial setbacks experienced by one, and possibly, two of our nation’s senior citizens, finding further nuggets is a task. But we’ll try:

Michael Ciggino, portfolio manager for the Permanent Portfolio Family of Funds, is quoted saying, “Gold is somewhat of a chameleon of an asset because investors tend to value it as a function of something else, and it’s sometimes tough to tell what that is.

Elsewhere, Eric Sprott, the CEO of Sprott Asset Management, opines that supply and demand statistics for gold are inaccurately reported, in a way that overstates supply and understates demand. He says “This lack of quality information has certainly been one of the driving factors behind the lack of investors’ confidence towards gold as an investment. “ He is quoted as calling gold’s recent price drop “bizarre.

Chris Cook, president of Zero Commission Portfolios, according to Mr. Light, advises not to buy gold as a hedge against falling stock prices. “Gold has personality disorder. You don’t know what you’re going to get. That creates a problem for anyone trying to use it.

As Mr. Light points out, unless gold has major price jump in the next few weeks, 2013 will be the first year since 2000 that gold didn’t go up in price. Gold is now down some 22% for the year, and trades for 30% less than its peak in August 2011. However, Mr. Light does point out that gold is still up 68% since Lehman Brother collapsed.

The article also mentions that some $22.14 billion dollars has exited the SPDR Gold Shares ETF so far in 2003. That reflects a lot of ‘hot’ money, no doubt going on to chase the next ‘hot’ things - Twitter IPO, anyone?

But a poll of gold owners, those who bought physical gold bullion this year, or 2011, or anytime going back to the late twentieth century, would reveal a different outlook.

Gold owners might cite the fact that $85 billion is created out of thin air every month, via Quantitative Easing. So to put into perspective the seemingly enormous sum of $22.14 billion that exited the gold ETF in the past ten months, that sum is equal to the amount of dollars that the Federal Reserve creates in about six business days. (On the seventh day, they rest).

Owners of physical gold would also point out that our national debt of $17 trillion or so, is just about two and a half times the value of all the gold mined in the world, since the beginning of human history.

Of particular note to those concerned about the dollar is that the US federal deficit for 2012, at over one trillion dollars ($1,087,000,000,000), exceeded the value of all the gold mined that year in the whole world 9.8 times over.

Private gold owners the world over tend to focus on the big picture. And the biggest part of that picture today is the vast flood of cheap money being unleashed on the world. Fans of gold have compared the long-time track record and stability of gold to fiat currency’s past history, and bought gold. If the price goes down, they may buy more. And if times get tough, the last thing they sell is their gold. Rather than call them investors, the more accurate term might be accumulators. Their motivations may vary, but many simply like to turn some of what they have earned, into something real.

And private parties are not the biggest players -central banks hold the lion’s share of the world’s gold. Why? Because although currencies are necessary for trade, gold is simply a universal form of wealth itself.

Is it time for investors to re-think gold?” Mr. Light’s article asks. Given the paltry participation of US investors in the physical gold market, compared to the rest of the world, the answer for most American dollar-holders is ‘yes.’


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