Jim Wang of Bargaineering highlighted an article that caught my attention last week. The author, Henry Blodget, wrote: Gold Prices Collapse As Everyone Remembers It’s Just Yellow Metal.
Two thoughts came to mind:
1) Yes it’s that Henry Blodget from the Internet bubble days of around 1998 and 1999. It seemed like whatever stock he wrote about suddenly jumped a ton. He’s probably most famous for saying that Amazon should be a $400 stock and it jumped over 100% to fulfill his prophecy.
2) I feel like I’ve written this article before… maybe even a couple times.
Almost 5 years to the day, I wrote about how I invested my IRA money. Each year I take reader suggestions on investing ideas and a few readers suggested gold. My response to the suggestions was:
“I simply hate gold as an investment. I don’t like how it’s not a basic necessity of life in today’s modern world. It makes as much sense to me as investing in tulips. I know it’s stood the test of time, but I think times were different before flat panel TVs and flashy cars. People would use their gold collection to show off their value in society. Today, people use other possessions. I don’t see a trend toward people selling their useful possessions for a hunk of gold. If anything it’s the other way around.”
(I always cringe a little when I read things I wrote a few years ago.)
Bloget’s article covers the conventional wisdom that gold “would protect the value of your savings from the ravages of out-of-control government money printing” and is “free from the accounting shenanigans, corruption, fraud, and operational uncertainty of stocks and companies” and thus would continue to rise.
However as prices are down 30% from their peak about two years ago, it is clear that just like any other commodity, there’s no guarantee it is going go up indefinitely. In fact, you can almost always plan on a crash on at some point… especially if it has gone up a lot over a long time like gold.
Blodget writes something that I tried to get at when I wrote about comparing investing in gold with investing in tulips:
“If this were mere ‘volatility’ — if gold had some fundamental value that it would likely eventually return to — then the price drop would be no big deal. But there’s no solid theoretical way to ‘value’ gold, so its price could do almost anything… The only thing that determines the price of gold is what someone is willing to pay for it.”
Doesn’t that remind everyone of BitCoins?