Portfolio Manager and President of Venable Park Investment Counsel (www.venablepark.com) Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book "Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts," and a popular daily financial blog: www.jugglingdynamite.com
Investment sales Hoorang can be hard to resist, but self-preservation requires that we do. Never more than amid today’s everything bubble, where mania has ballooned the pricing of many assets all at once, from stocks to high-yield credit, private equity, credit funds, real estate, crypto, and precious metals.
I have long said that people should hold bullion if it makes them sleep better, but to keep the amount as a set ratio of other assets and remember that it’s a bet against the value of everything else we own. I offered all of my thoughts on the topic in this 2011 article: A Word to the Gold Bugs. And the points remain relevant today.
Humans have been vulnerable to outbreaks of precious metals fever throughout history, and we should never forget that those selling us the story are taking our (worthless?) cash in exchange.
Many, critical of central banks and their myopic foresight, have been simultaneously touting the idea that central banks adding to their gold reserves is a reason for individuals to do the same. Blindly follow the blind? Those aware of history will know that a similar notion helped fuel the gold rush of 1979-80, before prices collapsed.
In the latest iteration, belief in dollar debasement has helped propel bullion and related share prices in a self-fulfilling loop, where higher prices increase the perceived allocation, even though volume allocations have changed little.
Believers rarely let facts get in the way or see any reason to cash out wins. Still, Real Investment Advice principal Michael Lebowitz offers sober analysis for those who are open to it in Dollar Debasement: Reality or Dangerous Narrative? Here’s Michael:
Another popular but misleading argument is that foreign central banks’ reserves in gold are increasing rapidly. That is true. However, as we share, central banks have barely added physical gold to their gold reserves. Instead, gold, as a percentage of reserves, has grown significantly because its price increases the value of the gold compared to other reserves.
Epic speculative fever is further evidenced in record levered bets in the space:
The chart below is courtesy of @SubuTrade. It shows that the volume of gold calls exceeds that of puts by the widest margin in the past 15 years. Call buyers are speculative traders who tend to follow narratives rather than fundamentals. The record call buying reflects the highly speculative enthusiasm in the gold market.
We are always at risk of losing our collective heads before coming to our senses one at a time. It’s wise to keep in mind the timeless quote attributed to Mark Twain:
“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”
STAY INFORMED! Receive our Weekly Recap of thought provoking articles, podcasts, and radio
delivered to your inbox for FREE! Sign up here for the HoweStreet.com Weekly Recap.
