Cash Out Of Gold And Send Kids To College?
Our Friend Stephen Flood's GoldCore.com writes:
The Financial Times published an interesting article on Wednesday by a Tokyo-based analyst with Arcus Research, Peter Tasker, entitled of 'Cash out of gold and send kids to college'.
The article is interesting as it is an articulate synopsis of those who are either negative on and or bearish on gold. It clearly shows the continuing failure to understand the importance of gold as a diversification and as financial insurance.
He conveniently ignores over 2,000 years of history showing how gold is a store of value. He also ignores recent academic research showing gold to be a hedging instrument and a safe haven asset.
Another fact unacknowledged is how gold has clearly been a store of value since the current financial and economic crisis began in 2007. Since then gold has protected people from depreciating financial assets (such as equities and noncore bonds) and from depreciating fiat currencies such as the dollar, the pound and more recently the euro.
Further evidence that gold is not just "another financial asset" is seen in the fact that some of the largest buyers of gold bullion bars today are central banks.
They are buying physical gold bullion in order to diversify their foreign exchange holdings and to own a physical hard asset that will protect in the event of currency crises or an international monetary crisis.
That gold remains a store of value is also seen in the fact that the other most important buyers of gold in the world are store of wealth buyers in Asia and the Middle East (particularly China and India but also in Turkey, Iran, Indonesia, Thailand, Malaysia, Vietnam etc).
Millions of these buyers do not view gold as a risky "financial asset." They know through experience that gold is a store of wealth and are buying near pure gold jewellery and bullion coins and bars in order to protect against currency debasement.
Were Peter to have a conversation with a few Spanish, Irish or Greek investors he would quickly realize why gold is not just another “risk on” asset.
Japanese, British and American investors would be wise to diversify into assets that have protected periphery European investors in recent months.
He also suggests that gold is a bubble as "the price has simply become too rich".
He makes a comparison with the "great historical bubbles", such as "Japanese stocks in the 1980s" and the "Nasdaq in the 1990s". This comparison is simplistic and misleading as the percentage price gains in both the Nikkei and Nasdaq bubbles was orders of magnitude greater than gold's gradual rise since in 2000.
Indeed if one looks at gold's performance in an all important long term perspective (see video showing ‘Gold Undervalued From Long Term Perspective’ <3 mins, 20 seconds>), one sees that gold's gains in recent years are very sustainable and gold is merely playing catch up after the massive under performance and bear market of the 1980's and 1990's.
The Financial Times is fairly good in covering the gold market and allowing a plurality of opinion regarding gold. Every so often simplistic, unbalanced articles about gold are published.
Such articles by 'experts' have the effect of confusing and misleading other journalists and the wider public and contribute to weak hands selling their gold holdings. This was seen again in recent days.
What is interesting is that such articles are often a contrarian indicator. They often come at a time of heightened negative sentiment against gold and can often mark an intermediate low in the gold price.
These articles are also a good contrarian indicator as they show that there remains a fundamental lack of knowledge about and appreciation of gold and its importance as a diversification for portfolios.
Incidentally, in the volatile year that has been 2011, gold has still outperformed many assets and seen its wealth preservation attributes shine again.
Gold has risen by 8.7% in euro terms, by 3.1% in US dollar terms and by 2.3% in sterling terms so far in 2011.
Never let the facts get in the way of a good gold bashing article.
Tasker accepts that US equities, despite being in a 12 year bull market, are still not cheap and yet he does not advise people to cash out of US equities.
Not acknowledged is the fact that only a tiny minority of investors h
ave any allocation to gold whatsoever and therefore are not in a position to “cash out of gold” even if they were imprudent to do so.
Finally, investors and savers who have an allocation to gold will, in the coming years, be the people who can as Tasker concludes "buy a nice house, hire some workers, send your kids to college and eat big breakfasts".
That is gold's value – it is a proven store of wealth that protects people's living standards from government profligacy and financial asset and currency depreciation.
'Cash out of gold and send kids to college' can be read here.
August 10, 2012 (Source: Goldcore)