Gold

By: Ian Campbell | Fri, Apr 1, 2011
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By way of background, it strikes me that many media journalists and online newsletter writers and commentators either don't address the correlation between what they speak or write about, and other factors that are relevant to their topic.

For example, many of those who speak and write about gold don't distinguish physical gold as a safe haven, from gold in the context of mining company shares. For some time now I have believed that those who hold physical gold solely as a safe haven shouldn't worry themselves a whole lot about gold's day to day price. At the same time, those trading or investing in gold exploration and production company shares ought to worry a lot about gold day to day price. I suggest you keep these things in mind as you read this commentary and some or all of the articles it links to. You can find an extensive write-up I did three years ago under a heading 'Gold as an Investment - How I Assess It and Why - Post #11 of 11'. In that write-up, aside from stating five (5) general conclusions with respect to gold, you will find my thoughts on gold mining stocks where I said "As I see it, reaching an opinion on whether one ought or ought not to own Gold Mining Stocks requires far more complex analysis than assessing whether one ought or ought not to own physical gold as a 'purchasing power hedge' in uncertain economic and geopolitical times. Essentially I see physical gold and gold mining stocks as quite different asset classes". I then went on in that write-up to discuss about thirty (30) things I think speculators and investors in gold exploration and production companies ought to consider when considering trading or investing in them. If you trade or invest in gold exploration or production companies you might find you could use that write-up as an interesting checklist.

In the past few days there were two Seeking Alpha articles proclaiming there currently is a 'gold bubble', and two Seeking Alpha articles and one other article proclaiming that there isn't a 'gold bubble'. The first two articles are titled 'The Impending Collapse of the Gold Bubble' - reading time 10 minutes - and 'The Impending Collapse of the Gold Bubble Part 2' - reading time also 10 minutes. I think these articles are worthwhile reading for anyone holding gold, as they provide one person's extensive reasoning on why he thinks gold is 'in a bubble'. I will say I didn't think physical gold was in a bubble before I read the two articles, and haven't changed my mind having read them. However, I am a great believer in 'not being convinced of your own position' and thinking through the beliefs of others to test and perhaps amend your own 'moving target' conclusions. Accordingly, I recommend you take the time to read these two articles and see if as result you amend your own current thoughts on physical gold and its current price.

The other three articles are titled 'Gold in a Bubble? Keep Telling Yourself That' - reading time 3 minutes - 'Enough Already: There's No Gold Bubble, OK?' - reading time 5 minutes - and 'Here's Your Guide To Debunking Gold Bears' - reading time 2 minutes'. The first of these three articles makes chart comparisons of the trend price of physical gold with the Nasdaq, Microsoft, the U.S. Federal Reserve balance sheet, and the 'Managed Money Net Long Position'. The second lists 29 reasons the author believes gold is 'not in a bubble'. Many of these reasons are probably over-stated but many of which I think are very sensible. The third lists 8 reasons the author likewise thinks gold is not in a bubble, the 4th of which focuses on 'What if we have deflation' where the author says "Deflation acts as a catalyst for Gold and gold shares". If you are going to read only one of these three articles, I recommend you read the second, 'Enough Already: There's No Gold Bubble, OK?'. I also recommend you take the 30 seconds required to read at least the 4th point of the third article that addresses 'gold in a deflationary period'. Most commentators on gold focus on inflation, few in my experience discuss 'gold in a deflationary period'.

'Gold and Deflation' is a topic I consider important to the point where I spent considerable time researching it over three years ago. If you are interested, you can review an extensive write-up setting out the results of that research by reading 'Gold as an Investment - How I Assess It and Why - Post #9 of 11' - reading time 5 minutes. In that write-up I concluded that "Whether the future economic circumstance is inflationary or deflationary some gold is a good thing to own as a 'safe haven holding".

 


 

Ian Campbell

Author: Ian Campbell

Ian R. Campbell, FCA, FCBV
Economic Straight Talk

Through the Economic Straight Talk Newsletter Ian R. Campbell shares his perspective on the world economy, the financial markets, and natural resources. A recognized business valuation authority, he founded Toronto based Campbell Valuation Partners (1976), Stock Research Portal (2007) a source of resource companies market data and analytic tools, and Economic Straight Talk (2012). The CICBV* annually funds business valuation research in his name**. Contact him at icampbell@srddi.com.
* Canadian Institute of Chartered Business Valuators
** through The Ian R. Campbell Research Initiative

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