Headlines, airwaves, and hotel conference centers have lately been packed with advisors telling people that they need to own gold - and lots of it. These gurus advocate holding bullion in IRAs or gold-linked ETFs in 401(k) accounts; owning gold using every available means and dollar. In truth, they are probably doing their audiences an incredible disservice.
Many readers will recall that we started buying gold mining stocks for clients in 1999 and 2000. This was back when the price of gold bullion had declined for almost 20 years. With gold under $300/ounce, many central banks around the world had given up and were selling the gold held in their vaults.
Now, with gold having stabilized well over $1,600/ounce, there is a surplus of advisors are just now coming around, touting the shiny metal as the best protection against inflation, deflation, recession, Congress in session, a collapse of the monetary system, or all of the above.
At the same time central banks, which were selling gold before it quintupled in price, are buying back their gold. Many of the world's largest pension funds, on the other hand, have been liquidating their own positions in commodities. Like us, their views have changed and they are now looking at other sectors that represent better opportunities.
Granted, after trading in and out of the precious metals market many times over the past 14 years, we still have some small exposure to mining companies. However, this exposure is limited, more likely to decrease in the future than increase, and there are reasons that we have it (e.g. the mismatch between metal prices and mining stock share prices); things that we've found because we are paid to study the intricacies of markets.
These things likely wouldn't be known to someone who didn't work in investments on at least a part time basis. This is why we say that unless someone works in investments enough to understand the complexities of trading in different types of assets (bullion vs. miners vs. ETFs vs. futures), or unless they just want to buy a few gold coins to hand down to their kids without a paper trail, most people have absolutely no business dealing in commodities.
Similarly, most people lack the historical perspective to realize that the bull market in gold has been running for more than a decade, that this is historically pretty long as bull markets go, or that this run in gold was preceded by a 20 year BEAR market. They see only that the price of bullion seems to have leveled off and wonder why.
This is, essentially, why 80% of investors are usually late to the party; they buy tech stocks in 2000 right before they collapse, or buy real estate in 2006 right before the bottom falls out of the market. These shortcomings aren't confined to the investing public; they include a number of brokers, advisors, pundits, and other well-known people.
Many readers will recall that we regularly write articles and that "Dock1" does a radio spot with Fred LeFebvre every morning on WSPD. These are tools we use to make some of our research public, and hopefully they are thought-provoking for our audience.
However, we are money managers - we don't want to be rock-stars. Other advisors with similar exposure spend all of their time writing books and articles or hosting radio shows, and manage money in their spare time. With all of their media efforts they don't have the time to do comprehensive research, and this can be detrimental for clients.
It can be almost as detrimental as an advisor who asks clients what they want to do. After all, if he/she isn't more informed about the markets than their clients - if his knowledge isn't the reason they're in his office in the first place - why are they being consulted?