Monday, July 15, 2013

Why so many investors get "faked out".

While glancing around over on TBP I noticed this link to a Motley Fool article article on gold and why investors "fall for bubbles". Mentioning gold and bubble in the same sentence is another way to imply that when gold goes up it is just a bubble, of course. What, after all, is gold good for. It is just a barbaric relic according to some parties. I could say the same thing about oil I suppose and point out that as an investment it isn't really that good, since you have to burn it up to get any good out of it. And then it is gone. Same with most of the commodities of the soft nature, orange juice, oats, corn, soybean oil and the like. And you know what you get after you use them up..... And yes, when demand is strong for those commodities they can see dramatic rises in price and equally dramatic declines in price as the demand wanes or supply is brought to market. So I guess you could call them bubbles. As long as the price fluctuations have nothing to do with supply or demand. But what is a price fluctuation but a reflection of the strength of demand or supply?

Motley Fool, if I remember right was started in the mid-late 1990's as a sort of common mans investment advice purveyor. They were the antidote to the mindless investing of the 90's. But from what I've seen they have fallen into the commercial trap as well as any investment advisor. And their articles tend to have a homogenous taste that smacks of advice to the most ignorant of paying "investors".

I suppose I just take umbrage with anyone calling gold a bubble since it is essentially a currency. Although it is not as convenient an medium of exchange, as say, the U.S. Dollar around the world it functions much better in the other role of a currency. That role being as a store of value. Particularly over the long stretch of time. I can't think of a paper currency that has been in use for over a couple hundred years, can you?

And as far as value goes, the Dow Jones Average was at 660 in 1960. Now at 15,480 for a rise of some 2,245%.
In 1960 gold was at $35 an ounce, now at about $1200/oz. for a rise of about 3,328%.

It would appear that gold holds it's value over the long haul.

It is reassuring to myself when publications start to pronounce a "bubble" in gold. They pander to the uninformed and the short term. Most markets will disappoint the most people in the course of their wanderings. Low inflation has been the story for twenty years now, with only that short episode in mid 2000's. The big trends get started in fits and starts, as people jump in and out according to the news of the day. Most are thinking of deleveraging still............

I think a few gold investors are getting faked out. But what do I know?

Just thinking,

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