Monday, August 22, 2011

GOLD IS JUST ANOTHER FOUR LETTER WORD


It seems bubbles just move around every couple of years - everyone rushed to get rich with dot com companies with no sales or earnings, and when that bubble burst everyone rushed to see who could flip the most houses at one time and now we have the gold rush of 2011.  

If I hear one more “buy gold now” commercial I might scream a different four letter word!  You can’t watch CNBC or Bloomberg or listen to their satellite radio broadcasts for even 10 minutes without hearing one of these ridiculous ads.  With the invention of gold ETFs like GLD and UGL, it is now easier than ever to “invest” in gold. (If you don’t know what an ETF is, you can learn from my book, The ETF Cookbook. But, please do not buy GLD or UGL).

Buying gold is a speculation and NOT an investment.  I define an investment as buying something that will produce future cash flows. Buying stocks in companies that produce and sell a good or service and turn a profit fits this definition.  Buying bonds that make interest payments to you, whether issued by a government or corporation fits this definition.  Gold does not fit this definition. 

Buying gold is nothing more than a simple Ponzi scheme!  Buying gold relies simply on the “greater fools” game.  Gold produces no earnings.  Gold makes no interest payments. The only way you can make money by purchasing gold, is if you can find a greater fool than you to pay you more than you paid for it.  Gold has very little functional or economic value. When there are no more fools to buy gold, the price will come crashing down.  I hope one of those “buy gold now” commercials lets me know when it is time to “sell gold now.” It seems my crystal ball is on the fritz.

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