Among investors, collectors and speculators, no investment seems to generate as much discussion as gold … especially since its mid-April sell-off and the beating it’s suffered during the past seven trading days that’s brought it to its current four-week low.
From the feedback you sent after yesterday’s discussion about pricing the recovery in gold, it’s clear that it’s a hot topic — in fact, you sent more e-mails yesterday than any other day since we launched the Afternoon Edition a few weeks ago!
Gold ended the week at $1,356 per troy ounce, down 17% for the year. Yet for all the selling, many buyers particularly in Asia are having trouble locating gold to buy. We are even hearing about gold bullion and gold coin premiums in the 20%+ neighborhood from our subscribers…
As Sean Brodrick will tell you in his column on Monday morning, he’s expecting a bottom in gold “sooner rather than later.” And I agree.
What do you think … is a bigger drop in store? Are you holding on to your gold, getting out before it goes lower or getting ready to load up? Or selling now to buy in at a lower price?
It should be an interesting several weeks ahead for the yellow metal, and we’re ready to guide you through it. In the meantime, I’m dedicating today’s edition to your comments and questions about gold, so let’s get right to those before we tackle the hot topics in the market today.
“Charlie” (name changed by request) says:
“Brad, your comparison of the Dow with the price of gold provides an interesting perspective. However, gold is subject to speculation and does not always represent a constant value in terms of real wealth such as things we use every day.
“Why don’t you do the same analysis in terms of how many loaves of bread it would cost to buy the Dow, or pounds of hamburger, kilowatts of electricity, movie tickets, etc.?
“A simpler way would be to use the Consumer Price Index but it may not show the same thing, since the CPI has changed over the years”.
Brad — Charlie, this is a great idea and several of your fellow readers asked for something similar. I want to let you know that we are working on it now and should be able to put something together for you next week.
Some people pointed out how gold can be manipulated through the use of so-called “paper gold” (that is, anything beyond your physical holdings). Of course, there’s paper gold sold based on a reserve requirement, which can distort the market.
In the long term, gold has maintained relatively consistent buying power, even though there are certainly short-term fluctuations. Further, the information about it is reasonably easy to obtain.
So, we agree that gold is not the perfect measure, but it’s the best one we have thus far.
That said, there’s no harm, maybe some good and certainly some fun in looking at investments/food prices/the Dow priced in bread and hamburger, etc. (I know I’m a nerd to think this stuff is “fun”!)
While we’re putting some numbers together, here’s something you might like. The Economist created a “Big Mac index” for 2012. I read The Economist every week and enjoy looking at this hamburger index often. I hope you get a kick out of it too. You can find it here.
Speaking of food and food prices, I asked how far your dollars really go these days.
“During the past six years, my favorite ricotta pie went from $6.99 to $9.99.
“Then just yesterday the price had jumped to $12.99.
“I cannot buy it anymore, and no, there is nothing that I can buy as substitution; nothing tastes anything like it.
“Fifteen years ago, we raised two teenage boys on a lower monthly food bill than what we spend now for just myself and my husband, and we eat a lot less now than we did in our 40s.
“If I had put all our money in gold 10 years ago, I would still be able to afford our favorite dessert.
“That’s my 2 cents or rather my 2 grams (of gold that is).”
Brad — This is a fantastic example of just how far apart Wall Street and Main Street actually are. Unfortunately, Fina, your experience is not unique.
Too many people send us e-mails with the same message — grocery bills, gas bills, electric bills, etc. are rising at a staggering rate. It’s especially worrisome for the retired, who likely never expected inflation to steal all of their accumulated wealth and purchasing power of their retirement and Social Security.
We’re seeing a rise in “three-income” households now. Many individuals are working two jobs to make ends meet. (Wouldn’t it be great if all that “extra” income could go straight to their nest eggs instead of to bills?)
The good news, Fina, is there are places to invest where your returns can outpace the loss of purchasing power of the dollar.
We know the Consumer Price Index is highly manipulated by every president, at least since Kennedy was president, so we really can’t rely completely on that measure for an accurate rate of inflation/price increase.
I know things can be tough sometimes, and I want you to know we take our responsibility to you and all our readers very seriously. We work hard to do everything we can to help you secure your financial position and improve it as quickly as possible.
No discussion of valuing goods in dollars is complete without recognizing that many of you spend time and/or invest overseas. But if we think a dollar doesn’t go far here in the U.S., in countries with stronger currencies it really becomes even-more-apparent.
As Richard relates:
“Hi Brad. I am a dual citizen, Swiss / American. I went back to Switzerland in 1963 and worked there for 47 years.
“In 1963, $1.00 = CHF 4.30. With an American salary I was king of the mountain !
“Today, $ 1.00 = CHF 0.95! A drop in the dollar value of more than 400%!
“The Swiss franc has stayed almost even (slightly higher) than the German deutschmark, and later the euro, which you know has also weakened.
“The USD will certainly collapse as the printing goes on.
“I started buying gold at $ 1,870/oz, and more recently at $1,580/oz. I’m not panicking, but holding it, and buying an equal amount of the ETF (ticker removed), until gold hits bottom and starts rising!”
Brad — Richard, good ideas! Sorry I had to take out the ETF you’re buying because I can’t comment on your investments.
In the long run we are all bullish on gold, and we all believe we are starting to see a bottom forming, but if you can get in at the right time you can increase your returns tremendously!
Thank you for your input Richard. We appreciate your feedback!
In Other Market News:
- The Fed has hinted that it might want to slowly pull back QE-Infinity. Yet Boston Fed President Eric Rosengren, one of only five Federal Reserve bankers who votes on monetary policy, seems to be making an argument that the Fed should be doing more to boost the economy. (Read: printing more money.) Inflation is at 1.7%, according to the Consumer Price Index, and the Fed wants it at 2%.
- Rosengren said this week that the economic data “could lead one to argue that the policy has not been sufficiently accommodative.” He didn’t explain what he meant. We can surmise, however, based on his interventionist arguments in the past, he wants the Fed to continue with its current policies.
- In the markets, Facebook (FB) celebrated its first anniversary as a publicly traded company. After a dubious debut and a lackluster year for the stock, the company is focusing far more on revenue than in the past. That means catering more to advertisers.
- Last month the company started holding ad boot camps to help employees understand the clients’ needs and how the ad products work. Facebook now offers advertisers 10 choices on how they can engage the FB audience, up from two a year ago. The changes helped boost revenue 36% to $1.46B last quarter, up from $1.06B in the same time period last year.
- Speaking of tech IPOs, business is “much busier” per Jeff Vetter, a partner specializing in IPOs and securities law at Fenwick and West. He estimates his firm will work on 12 tech IPOs this year, double last year’s six.
- Renaud Laplanche, chief executive of peer-to-peer lending marketplace Lending Club, believes FB’s poor IPO last year has helped bring “more sanity to the market.” He said, “The last thing we want is a stock price that shoots up 200% on the first day then drops from there.” He expects his company will be ready to go public by sometime next year.
You might notice I’ve been talking a lot about technology sector news. I believe this sector is one that can outpace the rate at which the Fed is devaluing the dollar.
I am a firm believer in gold, to protect yourself from Ben Bernanke & Co.’s schemes. It’s about as safe as you can get, because the purchasing power of the dollar is so erratic these days.
It’s also important, in my view, to make sure you’re earning profits on other investments. The profits just need to “outrun Bernanke.” I believe the tech sector may shape up to be one of the places you can do just that.
I’d love to hear your point of view on the subject. Just drop me a line at firstname.lastname@example.org and let me know!
Good Luck and Happy Investing.
Uncommon Wisdom Daily