Why you should ignore the gold rush

Unfortunately this article is almost complete nonsense from start to finish.

I will make just two points:

First: Gold is a currency. Other currencies are being printed like mad. Gold is not and cannot be printed. The laws of supply/demand dictate that it will go up relative to paper currencies.

Second: Ms Hyde says: 'Gold has many attractions. Not least that - unlike shares or bonds - it has some inherent value.' That of course is complete nonsense. It has no inherent value because it doesn't generate any cash flow. Shares and bonds both generate cash and so do have a value on a DCF basis.

Commentators like this are responsible for leading us to where we are today.

I said it at least three three weeks ago that everyone is jumping on the gold Band Wagon, which could be the next bubble.

Given a choice of paper, of any denomination and the yellow stuff, all the savvy world opinion is as one. The former is an act of faith, backed by nothing much,other tan increasing piles of debt, whilst the latter has scarcity value and credibility and has had since the world began. Anybody selling now or shorting will be trampled by hordes of willing buyers , some of which are just waking up to the situation.

The points made by the others above are all correct but not widely recognised by the masses. However, they will be highlighted as this bubble starts to inflate, which it is only just warming up to do at the moment.

In inflation adjusted terms and relative to the levels of financial problems around the world's economies and paper currencies gold is nowhere near the peak levels we have seen in the past let alone those we will likely see this time around. Moreover, we now have China's massive population, previously banned from gold ownership, now being encouraged to buy. We also have a reversal of long term selling by central banks, which are now buying, so the future may well surprise to the upside as all the precious metals continue for some considerable time to fly to amazing hights.

Then, as if all that is not enough, there is also the question of dwindling supply and reduced descovery of large, high grade low cost deposits, despite the much increased price over tha last decade. At the very least, a near perfect storm in gold's favour. If only the press were better informed and had more open minds the recent and future precious metals performances would not keep surprising them. However, and looking on the bright side, we will all know when to sell because these same journalists will start telling us to buy.

To say that gold has no intrinsic value because it doesn't generate a cash flow is, if not nonsense, then a misconception. The intrinsic value of anything is what the populace is prepared to pay. The retail price of something is not it's intrinsic value. In an auction situation nothing has an intrinsic value until the end of the auction. On the stock market the value of tomorrow's shares is unknown. What is the intrinsic value of a share? An ounce of gold will, however, always be an ounce of gold.

I think the 'no intrinsic value' comment arises from the fact that gold has few real uses. Of course it is used in Jewellry and dental work, but it is not needed in the manufacture of cars, or anything else apart from sometimes on very high end electrical connectors. Other metals are very much linked to industrial output.

I suppose it supports the notion that gold is dug out of a hole in the ground and locked away inside another one!

Obviously Ms Hyde believes what the government wants wants her to believe and propagate

But the reality is the US is still printing $ at full speed, the Euro is is disintegrating faster than you can say PIIGS and the pound is being buried under the mountain of defence spending, to bolster the macho image delusions of our leaders and never ending wars arranging and rearranging the World map The US and UK are both heading the way Rome went and for the same reasons.

It is not Kruschev who will bury us it is Russia, India and our delusions of grandeur.

Paper vs gold. One has been used as surrogate store of value for thousands of years....the other since 1971. Hmmm. Since the creation of the Federal Reserve the dollar has lost 95% of it's purchasing power. The financial industries are trying to trash currencies as it's the only way they know to get rid of the debts that have built up. Sure there are bubbles blowing all over the place. That's what happens when you flood the banks with monopoly money. No doubt a great deal of it will be dished out as bonuses.

Are you ready for the £20 / £30 / £50 pint of lager? It's round the corner. State sponsored theft! Do you trust them? Bear in mind that this army of apparent know-alls brought us to within several hours of a complete freeze on all cashpoints, plastic and banking services...only two years ago. Did they really address the problems or did they just delay them?

Gold may not generate cash flow but it doesn't matter when cash is steadily devaluing anyway. What's the good of getting an income or cash flow at 5% when inflation is running at 3.1%?

I would agree with the general view, that gold may fall back $100/oz, but will then continue its ascent to new highs. When the markets start down, gold will get pulled down initially, but will reverse back up, whilst shares carry on down into the debt mire that our banks and governments have created for us all to long suffer. Its quite common for the end of the year to be the peak, whilst there is often a pull back around Oct/Nov. Of course nothing is carved in stone.

Tread carefully fellow investors, once again the air seems thinner than ever up here! But what difference does that make???

"All that glisters is not gold " etc etc - possibly fools gold.

The last line above should read.....it is China, India and our delusions of grandeur

The Phelps law of economics -

The value of gold is proportional to the speed of the printing presses

(the direction appears to be up at the moment ! )

"In short, the argument goes: buying gold now means you believe that even the recent surge (see chart above) has failed to account for how far the dollar may fall, how bad the economy will be or how far inflation will rise."

Ok one at a time. The dollar is hosed. There is an expectation that QE2 is just around the corner. More paper = dilution of the $ = less value = more money leaving paper and into equities and especially commodities.

And what about QE3 or QE4 or QEn? Why do these so called financial expert journalists lack even the basics of foresight?

How bad is the economy? Which economy - the world economy is toast apart from China, India, Oz and maybe Canada. When the Ferengi on Wall Street invented CDO's then shorted them the CDS's they mangled 70% of the World's Banks. It will take years to sort that out if ever (without rampant inflation). Who are they shorting now? Ireland, Italy, Spain and Portugal.

Inflation? What is the best way to get rid of a multi trillion $/£ deficit? - Inflation. The more the better.

There is no place like Gold and that's the way its gonna stay for some time.

Goldman Sachs predicts Gold at $1600 an oz in a year. Who created CDO's and CDF's - well that would be Goldman Sachs!!

Now for some hard facts. 8 weeks ago I bought 2 gold miners:

AGLD - UP 54%

GMA - UP 120%

Last week I bought SHG - UP 4% and today I bought OXS. Gold miners make up 22% of my portfolio by value.

This ain't no bubble dudes.

I have invested in gold every year since 2002, but have recently reduced my holdings. My advice is to buy on the dips, and always think in terms of the price in £s if you're a Sterling investor. I'll probably buy some back if it falls to £800, but get out quickly if interest rates start to rise in any serious attempt to control the Consumer Prices Index, either in the UK or in the USA. As long as paper currencies are in a competitive devaluation situation, with potential Quantitative Easing, gold will have much more upside. George Soros said a bubble was beginning, but that didn't stop him buying some. We are nowhere near a blow-off top, which identifies most bubbles, as in 1980.

"‘We would generally expect improving global economic conditions, suggesting a rise in corporate earnings and thus making equities a more attractive investment, to lead to a decline in the prices of gold and silver as secure investments in uncertain conditions.’"

That rosy scenario is not a done deal, and there are plenty around to warn that we are double-dipping. While the presses rev up for QE2 and the return to steady GDP growth and low inflation remains a toss-up, of course a lot of people will be taking out insurance against hyperstagflation-- using the oldest, soundest currency of all. Nothing atavistic or illogical about it.

As Ian McCann says above, the bullion price is by no means at an all-time zenith in terms of what it quintessentially measures itself against: the debauching of fiat money by politicians, trying to relieve themselves and feckless voters of the burden of debt by tolerating or fuelling inflation at the expense of the provident saver.

Gold is one way the thrifty can hit back and defend what's left of their purchasing power. The message of the bubble, if that's all it is, is the same that pollsters find: a worldwide collapse of confidence in the bona fides and good sense of rulers and elites since 2007, expressed financially in this resort to the Barbarous Relic.

Long may it give the fearful a safe haven. Meanwhile, consider the current scene: sluggish growth, strong sterling on near-zero interest rates, stubbornly high inflation over target yet with a boom in conventional gilts, historically high relative yields on equities despite a majority of economists foreseeing recovery. If anyone thinks all that makes sense in terms of the Keynesian textbook, explain it to me.

Bewilderment at these mixed messages from asset classes and economic stats is enough to account for the gold rush.

Lots of good comments hear with sound reasons for continuing rise in gold and silver but it is getting to look a bit like the IT boom in the early nineties and strange that someone wanted to exchange their ETF sec. shares for actual gold with all the issues around holding the commodity what do they know we dont about the ETF. Makes me nervous so sold some of my holdings at substantial profit and lock it in. If the price comes back temporarily I think its top up on miners.

As usual the headline is misleading and intended to scare the uneducated and lazy out of investing in gold. Gold is not in a bubble; it would need to be over $2,300 per oz. (USD) to just break even with the most conserative (and contrived I might add) government estimates of inflation. If we returned to the gold standard, it would take a price in excess of $30,000 USD to absorb all the fiat currencies out there.

I do agree with the sentiment at the end that silver has a much longer way to run than gold. There is a severe silver shortage in the world today that no one wants to talk about. In the 1950's there was 50 times as much silver above ground as gold. Today, there is 50 times as much gold above ground as silver avaiable to users and investors. You can do that math from there.

The only bubble is in Ms. Hyde's head and the governments and financial institutions of the world who can't stand that gold is making a few highly intelligent investors extremely wealthy while they inflate away their debts.

The best investment for Citywire is not gold but perhaps one or two decent financial commentators, the current crop are letting the side down with what appear to be hastily thrown together comments masquerading as journalism.

Gold is high and could go higher. It tends to have periods of rising value and then can plateau for a ith the liklihood of rising inflation, i can see it having a good run yet. It's a good punt to mirror with equities, as they are also, bound to rise with low interest rates. When gold stalls, equities return to bear markets, get into gilts! Balance and spread are always good advice...eggs and baskets spring to mind!

One of the points many of you seem to miss is that Deborah is reporting the opinions of other people in an attempt to be even handed. Readers should make up their minds on the evidence presented. But don't shoot the messenger.

If you want commentators to tell you what to think, read the Daily Mail or the Sun.

Interesting comments from the above, almost all Bulls! The Sterling chart looks a little "peaky" to me.

As soon as I saw the headline I knew we were in for some Citywire rubbish. If readers really want to know what is going on, read The Daily Reckoning from Agora Financial. Their writers actually know what they are writing about.

Sell me all your gold, Deborah- I'm buying all I can afford as it will more than double in the next year or two. Unless, of course, you think Helicoptor Ben knows what he is doing......

Cant lose your shirt on gold!!! She obviously has zero knowledge of the futures market in gold, which can, and has plummetted overnight when the markets over here are closed, and you wake up on a monday morning owing thousands to the brokers because your investment is heavily geared. Stop- losses mean nothing when that happens. As previously pointed out, gold has limited uses other than in the eye of the investor. Any perceived improvement in the financial situation will lead to a dump in the value of gold. Fear is a more powerful incentive than greed. If people think gold is on the wain you will get killed in the rush to off load it, particularly when it is at the exaggerated price that it is at the moment. I remember being advised to buy gold when it was 255 per ounce and having to dump it when it drifted down to 200. It cost me £5000. What could it do at these levels?

"I remember being advised to buy gold when it was 255 per ounce and having to dump it when it drifted down to 200. It cost me £5000. What could it do at these levels?"

What a shame you sold out, that 5k would be worth many times more now if only you'd kept the faith.

My hairdresser hasn't asked me about gold yet so I'll stay invested for now....

Funnily enough both my hairdresser and her boss the barber were discussing the price of gold, the barbers had taken his mother's old gold jewellry to the market and hawked it for £800, he got what he thought was best value by bartering between two buyers.

Ha, I guess you have a more up-market barber than me then :-)

Greetings Colin Grant,

"I remember being advised to buy gold when it was 255 per ounce and having to dump it when it drifted down to 200. It cost me £5000. What could it do at these levels?"

Well your initial investment was circa £25,000.

If you had not sold but were to sell today @ $1367 per oz - what would you have realised?

My Guess?

£134019.61

Assuming of course that the 255 and 200 numbers are dollars.

We might be off the Gold Standard, but half the world still sees gold as a currency equivalent. Fiat paper is not a store of value and suffers rapid depreciation with printing. Gold has a long way to go yet, as does silver. QE2 will accelerate the rise.

My children were as good as gold so I kept them for years and their value went up and up.

Bubbles can run beyond peoples wildest dreams and no-one rings a bell at the top, hockey stick like graphs. At present demand is high but as sellers (reference to my barber) release their gold then supply will outstrip demand, the ETF market is a relatively new phenomena and if these turned sellers who is the real buyer, what price is the true support ?

STOP PRE$$! Sell gold, and get what of any value? Recycled dirty old newspaper reshaphed into the form of US Dollars. When bankrupt America stops the printing pre$$, when each and every American citizen has paid back its debt (impossible) to the kind lenders of the rest of the world ($32,000 per man, woman and child), and America recognises by itself and within itself that it is a fourth-world country, then I might consider selling gold. But I probably won't have to do that, because by the time the US defaults on its trillions of dollars of debt the world will have reached the "e-Gold Standard," which will put an end to America's reckless fiat currency spending since Nixon took America off the Gold Standard in 1971, and will put that country in its place as a fourth-world country until such time the United States follows its own Constitution which once made it so great.....

The reasons for not buying gold in this article are speculative;

- Improvements from future corporate earnings coming from improving economic global conditions.

- Taking into account how far the dollar or the economy may fall in the future.

- Less aggressive QE2s

Ultimately, these reasons have no solid evidence in their favour and are all a complete "what if?"

On the other hand the pros for investing in gold are all facts available to investors, all of which have been pointed out in the above comments and replys. The US, UK, Japan and many other countries have not only undertaken heavy money printing, they are actively promoting the fact that they intend to do more (aswell as keeping interest rates at rock bottom), this is not a "what if?" but a dead certainty for the future. If you understand why these monetary policies are good for gold you should know which way the sensible bet is. I see no convincing reason to reverse the trade based on "what if?" when there is definitely more of the same coming.

With regard to getting better returns elsewhere such as silver, that may be the case but that is probably a different argument altogether.

I have read conflicting reports about QE2:

1) It's only talk, because the mere mention of it has already sent the dollar down.

2) It's happening but a bit under the radar, through Open Market Operations.

What might be more important is the possibility that China (and others) might stop funding US debt. Even though there could be huge costs for China, the possibility could still spook investors.

The best time to sell gold might be shortly before 'emerging economy' countries are happy to have strong currencies (a tough one to call). My guess is that strong economies are not generally hurt by a strong currency, e.g. the UK up to the 1920's, but I don't know enough history to be sure.

What a contrast between inherent female caution and male speculators with the bit between their teeth.

'Twas ever the case!

Alan Franklin, I have just looked upAgora Financial and they are saying sell gold?!

Bill Bonner (Agora) looks to be on the fence:

“If we were speculators, we might consider selling our gold,” Bill Bonner writes, in tune with our “deflation now, inflation later” forecast. “But we're not gamblers. We hold gold because it represents real wealth, not because we think it will go up in price.

“We don't really know what direction it is going. But that's why we hold it. We don't know what direction anything is going. The nice thing about gold is that it doesn't matter. Gold doesn't go anywhere. It just sits there.

“If you buy a bond, for example, you have to worry about the credit quality of the issuer. If things get bad enough, he won't be able to pay up. Your bond could be worthless.

“Same for stocks. A stock is a share of a company. If the company goes out of business, your stock certificates (assuming you have them) are only good for decorations.

“Real estate is more reliable. But there are taxes and upkeep to pay.

“Gold is a better way to store wealth. You don't pay property taxes on it. And the roof never leaks.

“Besides, gold is especially valuable when other forms of money lose their appeal. The trend of debt destruction will probably not end soon. And the feds will probably sooner or later follow Paul Krugman's advice to "raise [the Fed's] long-term inflation target, to help convince the private sector that borrowing is a good idea and hoarding cash is a mistake."

“In the meantime, gold may go down in dollar terms. Which will make a good time to buy it.”

gold rises when there are wars. this what always happened historically.gold was $200 at start of the century. when the west went into 2 successive wars in afgahnastan and iraq gold has been going up since 9/11 2001.

as long as the west is engaged in wars in afgahnstan and iraq and possibly iran gold will continue to rise and only when war stop gold price will crush

I've listened to bankers, finacial advisers, accountants and the so called "insiders" on investment strategy, they reflect not direct. Gold and silver should be everyones portfolio as should BP. Like Anonymous 4 commented, with $32,000 debt per American what will the $ value be in the years to come. As for George Soros do you honestly think he would advise 'the lesser us' on how we should invest? NEVER!!!!

Ref Michael Gilchrist.

Agora does publish editorial and ideas from a wide section of the press and experts in all sorts of fields within the financial world. Some are specialist short term traders others more long term speculators or investors as well as economists. However, I would read past a headline as nearly everyone they reference is to some extent behind gold in the medium to long term.

Best of luck and be safe.

I bought an AIM listed gold miner [PAF] Pan African Resources - done quite well. One of the few AIM miners to pay a dividend (5.7%) too! Twas a tip in Investors Chronicle last year.

With sentiment nearing ever closer to 100% bulls the number of buyer's must be running out fast. Get the last remaining shorts closed out and the future trend will more likely be down, and surely won't be people be selling gold to pay off debt?

This market could decline as fast as it rose but with the risk of it blowing off first like silver did in 1980 its not a short that I fancy.

ref Edmund Jackson,

Over the last 10 years gold has risen from about $250 per ounce to almost $1400. Over this same period the FTSE, DOW and S&P 500 have barely made any progress. To speculate in this environment one would be buying stocks. People get confussed when a currently safe investment theme is flying they feel it must be dangerous whereas the slow themes are safer. Investing is not like driving. Speed is not always more risky.

I have read here and there that there is more gold above ground than silver above ground, but I'm left wondering how accurately anyone can estimate these amounts. This might be a crazy question, but could there be a significant amount of silver tableware stashed away in lofts?

SIlver stockpiles are at an all time low. It's better to buy gold and silver as insurance at the present time. It's likely to go a long way up, and there's a small risk it might fall-back. Hold 10 to 20% of your savings in gold/ silver as an insurance against the whole economy tanking........ at least that way you will have something, maybe with 10 times current value in paper $ terms.

If central banks and governments of G 20 countries decide to sell a percentage of their gold reserves and never to buy it back again then gold can crash. This is not impossible

The inhabitants of the emerging economies are getting richer, are deeply suspicious about governments and have a long tradition of buying gold - there will be ups and downs but I don't think it will crash. Buy good mining shares on the dips.

Lovely stuff Gold. If you want to know why people and Govt. buy it ,you had better ask them.