Gold Prices are Well Below Market Fundamentals


For those who are speculating on the dollar—i.e. most people—there was good news this week. The dollar rose almost a milligram, to 28.3mg gold. That’s a big gain, and welcome news for those who keep all of their eggs in the one dollar basket, perhaps because they don’t want to risk any of it on pet rocks.

Yes, Jason Zweig at the Wall Street Journal actually said that. He couldn’t be more wrong—and yet he had a point. Wrong? Let me count the ways.

One, per his title, he compares gold to a pet rock. A pet rock is either a useless knickknack, or else a fraud that preys on the irrational psychology of people in crowds. Gold is honest money, and the extinguisher of debt. Just because governments have banned it from the monetary system, does not make it either useless or a fraud.

Two, he quotes a Barclays researcher saying that investors have become disillusioned with gold. Well, gold is not an investment. Even if one accepts the mainstream premise that gold is a commodity that you buy so you will make money—i.e. dollars—when it goes up, this is speculation. It is not investing. Our whole financial world is now stoned on the drug of zero interest rates. With no yield to be had, capital gain is all.
Read more at AffluentInvestor

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