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Wall Street Journal Examplifies Mis-information on Gold

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Published : October 05th, 2011
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Category : Gold and Silver





Last Thursday I was invited on CNBC’s Fast Money to discuss gold with the assembled panel. Far from pugnacious, the group was surprisingly objective in their line of questioning and desmonstrated a genuine interest in the prospects for gold – wihtout putting forth a position of their own. Which is as it should be. If you don’t know anything about a certain business or asset class, you ask questions, you don’t make it up as you go along.

Francesco Guerrera, however, writing in the Wall Street Journal yesterday, has no such manadate. He’s happy to misinterpret the causes of gold’s rise and fall, as well as its value, in a piece entitled variously “How Much is Gold Really Worth?” or “A Golden Age for Gold Loses Some of its Luster”. Geurrera’s negativity on gold, and his timing, could probably not be worse. Despite a recent correction that gold drop 15% from a recent all time high of $1920, the relentless upward march that has characterized the price of gold since 2002 has resumed. Furthermore, and as Guerrera fails to point out, each time gold has corrected by 10% to the downside within a two week window after setting a new record high, it has gone on to increase exponentially in price to set another record high.

But Geurrera is more focused on the negative soundbits that smack of a propoganda campaign initiated by Tokyo Rose.

Her writes:

“Look at it this way: If the gyrations of commodities markets were to be turned into a movie, gold would be the sad sack with unexpected powers of redemption, played by Paul Giamatti.

Inert and largely useless, in boom periods gold sits around in its drab living room moping, ignored by investors and outshone by racier assets such as stocks and mortgage-backed securities.

But as economic gloom spreads and recession fears grip the world, gold, helped by its more-volatile buddy silver (Owen Wilson), stages a triumphal comeback, riding to the rescue of scared fund managers.

I have a title for this tale of an unlikely hero for our troubled times: “No Yield”—the feature that sets gold apart from most other assets.”, he writes.

Gold is neither inert, nor useless, strictly speaking, from an industrial point of view. It is one of the bery best conductors of electricity (Look to brands like the high-end Monster gold-tipped stereo cables as evidence), and its maleability make it one of the most ubiquitous ingredients in computers and electronics.

As far as his allegation that it is only attractive when ‘economic gloom spreads and recession gears grip the world’, thats just a bald faced lie. Gold’s 500% rise since 2002 has occurred precisely in the middle of the bull market that marked 2002 – 2008.

And finally, if he wants to classify gold as a “no-yield” asset class, I’ll wager he’s virtually penniless and makes nothing investing. Had you bought gold in 2002 and sold even at the very bottom of the last fortnight’s correction, you’d still be up 480% or more. While that certainly isn’t ‘yield’ in the classical Treasury or dividend stock sense of the word, that profit could certainly be calssified as yield. And incremental payment from an asset whose cost base is deteriorating is irrelevant next to the bottom line: retained earnings over time.

So what motivates such mis-information, and more importantly, how is it that a publication as respected as the Wall Street Journal could publish information whose value to the investing public is severely negative? The answers to that are mysteriously absent, and email to the editors went unanswered.

But readers need to bear only several things in mind when contemplating gold as an wealth preservation strategy.

Since 2002, the price of gold has risen in direct proportion to the global supply of fiat currency, particularly USD. Gold has risen by a factor of 5 in that timeframe, and so has the quantitiy of USD. And certainly, there is nothing – absolutely nothing – to expect anything but a continuation of the debasement of the U.S. currency. And it would appear quite likely that Europe is soon going to join that strategy.

Secondly, among the factors that were not present previously that are gold price positive are the spreading sovereign debt crisis, collapsing government revenues, and economic stagnation.

So sorry Francesco. Its back to high school economics for you. Gold is stronger now than it has been in the last decade, and only fools will believe otherwise.

James West

Midas Letter is the Journal of Investment Strategy of the Midas Letter Opportunity Fund, a Luxembourg-based Special Investment Fund that specializes in Canadian-listed emerging companies in the resource sector with a focus on precious metals explorers and miners. James West is the Portfolio and Investment Advisor to the fund.

Every month, James West’s MidasLetter Premium Edition deconstructs the economic and political events of the past and upcoming week, and identifies risks and opportunities to investors seeking to profit while the majority of investors are losing money.

With a track record extending back 10 years in precious metals-related assets, Midas Letter provides actionable, accurate, and un-biased information every week that saves subscribers losses from exposure to mis-identified trends, and directs them to high performance investments.

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James West is an independent writer who has been active in the management, finance and public relations of public companies in both the resource and technology sectors for over twenty years.
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Gold speaks for itself. Any misinformation campaign is and will be self defeating. Investors are gullible but not dopes. We need to thank the analysts and the internet for making information available enabling investors to make common sense based investment decisions.
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Gold speaks for itself. Any misinformation campaign is and will be self defeating. Investors are gullible but not dopes. We need to thank the analysts and the internet for making information available enabling investors to make common sense based investm  Read more
Papli - 10/6/2011 at 1:50 AM GMT
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