The number of calls we have received about gold has certainly diminished over the past several months as the yellow metal has lost over 25% of its value from the peak. Here is a chart of the last few years:
In a post a few months ago, we discussed why we avoid gold in our portfolios. We dislike this investment mainly long-term in nature (no income, no growth, no real intrinsic value to the metal), but recently we have seen other reasons why the metal is selling off. Gold is often considered the doomsday trade. The thought goes that if everything goes to hell, gold is the one investment that will hold its value. The one thing to remember is that it just doesn’t happen very often when it comes to the end of the world.
The concern of massive government deficits, hyperinflation, and social unrest is easing significantly. Yesterday, Ben Bernanke told us that economic conditions are continuing to improve, and therefore, they will be tapering off assistance to the economy by the end of the year. Gold has reacted as you would expect, with investors rushing to the exit, as the fear of economic collapse and government intervention has lessened.
If you are a bull on gold, I guess this is a welcomed sign. If you liked it at $1,900, you should love it at $1300. As we mentioned in a prior post, there is no way to determine the real value of gold since there is no cash flow or possibility for growth. Therefore, we continue to avoid this investment and will do so unless something fundamentally changes.
