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Gold: Feast or Famine?


Time is the arbiter of its financial fate


The yellow metal debate is pretty fierce. On one side, you've got a viable view that it's the only true store of value in a world full of fiat currencies. On the other, there is the opinion that, in the words of Warren Buffett, "It has no utility; anyone watching from Mars would be scratching their head." He's got a point; we dig it up, turn around and bury it in our back yard.

What's clear is that they're great trading vehicles and goes without saying, have proved to be solid investments over the last decade. They were also, for lack of a better word, my salvation coming out of a particularly chilly streak in 2003. "Buy energy and metals, short tech and financials and open a taco stand in Costa Rica," I said at the time, sending shivers through the culinary ranks in Central America.

Why do I bring this up now? As communicated on The Buzz a few weeks ago, my antennae started to vibe. While speaking at the Reuters Investment Summit earlier this week, I shared my belief that it's within the probability spectrum (roughly 20% or so) that gold zooms to $3000/oz. But nestled within that same sphere -- and with a much higher likelihood -- is that it trades back towards $600-$800/oz.

Price is the arbiter of variant views and time will serve as the judge. As we find our way from here to there, I'll gently remind Minyans that commodities often serve as a hiding spot during tenuous times but rarely, if ever, are impervious safe-havens.

Watch the dollar carefully; if it catches a sustained bid, this year's gold will be last year's crude.

Some Random Thoughts:

  • Remember we spoke about the growing chasm between the "have's" and "have not's" in 2005 and it was considered novel? I think it's safe to say an emerging class war-caused by the deterioration of the middle class masked by the lower dollar and skewed by the spending habits of a slimming margin of society-continues to manifest.

  • "Frugality is the new fashion and is likely to stay that way for years as attitudes toward discretionary spending, home ownership and credit undergo a secular shift towards prudence and conservatism," says David Rosenberg of Gluskin Sheff.

  • In other words we've entered into The Age of Austerity.

  • The one-of-a-kind -- all right, one of fifty in the entire world -- limited edition copy of The Power of The Invisible Sun signed by Sting and Bobby Sager (with 100% of the proceeds to benefit their worthy cause) will close on today's bell. Minyan Jason is currently atop the leader board with a $750 bid. If you would like to score this snazzy book for you or a loved one, please ping me directly!

  • Sticking with the Festivus philanthropy theme into the holidays, a worthy Minyan offered some shekels -- matched by his firm, no less -- for an inscribed copy of Memoirs of a Minyan, the serialized e-Book I wrote this year detailing my journey. If you would like to obtain a copy, we'll make it snazzy in an effort to help some kids.

  • Wednesday we spoke about Britain slapping a 50% tax on banking bonuses. Yesterday, France considered the same. The more countries that climb aboard this populous bandwagon, the more pressure there will be on stateside politicians to do the same.

  • No doubt some of the recent strength in Goldman Sachs (GS) is a function of its decision to suspend cash bonuses for senior management; some analysts will argue those monies will flow straight to the bottom-line.

  • Putting relative pay discussions aside, I believe equity grants on a wider scale are a valid compensatory model, one that would tie employees to a meritocracy-based solution. I'm sure that folks will find fault with this approach but folks will find fault with most anything these days!

  • Why am I not surprised 50-foot waves are heading to Hawaii? I mean... seriously?

  • Are you a Facebook Fan of our community yet? Pointing your kids to Minyanland? Sniffed our corporate website?

  • No? How come -- tell me why! Say it, Say it, SAY IT!

  • When one of the smartest media investors I know is loading the boat on AOL (AOL), I, for one, sit up and take notice.

  • Snaps to Ron Coby & Denny Lamson for their UltraShort Crude ProShares (SCO) call in the Grail ETF & Equity Investor newsletter (free trial), which is +25% in the past month.

  • That Chase commercial where the wife spends their joint points on a new dress kills me. If your significant other emptied your entire vacation account, particularly in this economic environment, would you smile and give her a hug or make her return it and get a thermos instead?

  • The risk trade is back on, but ask yourself where the pendulum is postured? In late 1999, it was stuck to the far right (after wheeling around a number of times at a furious pace). This March it was plastered on the left as investors curled in a fetal position and sucked their thumb. We're currently not at either extreme but it's a worthy exercise as we assimilate the landscape.

  • In other words, denial, migration and panic is a virtuous cycle.

  • We spoke about the elasticity of debt as the single greatest variable separating financial normalcy from global crisis. I can't help wonder if the elasticity of sovereign credit and credibility, which go hand in hand, have now assumed that role.

  • Maybe they should just recreate currency from Bounty paper towels?

  • I wish "dollar devaluation vs. asset class deflation" was still our dirty little secret in the 'Ville.

  • If you measured this year's rally in anything other than dollars -- or for that matter, if you applied this exercise since 2002 -- the results may very well surprise you.

  • On a housekeeping note, next week will be my last five-session set of 2009. It's been a long haul this year and I would be lying if I said I wasn't in need of a time-out. Pure heads up-and a bit early-but that's how we roll in the 'Ville.

  • Hit 'em hard and have a mighty fine weekend, Minyans, you've most certainly earned it.


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