Saturday, June 5, 2010

The WSJ's Hit Piece On Gold

They don't like you buying gold, because, unlike your shares in your IRA and your 401K or your portfolio, they'd have to come to your house directly and steal it.

    Tyler Durden
    ZeroHedge -

    The WSJ issues an amusing hit piece on why gold is nothing but a "Ponzi Scheme", ignoring the fact that by its definition the stock market is precisely the very same. Either way, since we are seeing no let up in the currency debasement department of Central Banks, and gold continuing to trade near record highs, it is a good thing to occasionally have a shake out of the weak hands. After all it will merely provide far better entry prices for countries like Russia, which as we disclosed recently, have been buying up all the IMF has to sell in the open market. At the end of the day - the opinion of Brett Arends or of David Einhorn, David Rosenberg, Jim Rickards, Eric Sprott, and, oh yeah, John Paulson.

    Some philosophical snippets from the WSJ hit piece. No commentary necessary:

    At some levels, gold, as an investment, is absolutely ridiculous.

    Warren Buffett put it well. "Gold gets dug out of the ground in Africa, or someplace," he said. "Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head."

    And that's not the half of it.

    Gold is volatile. It's hard to value. It generates no income.

    Yes, it's a "hard asset," but so are lots of other things—like land, bags of rice, even bottled water.

    It's a currency "substitute," but it's useless. In prison, at least, they use cigarettes: If all else fails, they can smoke them. Imagine a bunch of health nuts in a nonsmoking "facility" still trying to settle their debts with cigarettes. That's gold. It doesn't make sense.

    Some cherrypicking of facts:

    As for being a "store of value," anyone who bought gold in the late 1970s and held on lost nearly all their purchasing power over the next 20 years.

    Why gold is a ponzi:

    Most of the new supply has come from mine production. Some, though a dwindling amount, has come from central banks. And a growing amount has come from recycling—old jewelry and the like being melted down for scrap. (This is a perennial issue with gold. I never understand why the fans think gold's incredible durability—it doesn't waste or corrode—is bullish for the market. It's bearish.) So if supply has consistently exceeded user demand, how come the price of gold has still been rising?

    In a word, hoarding.

    Gold investors, or hoarders, have made up all the difference. They are the only reason total "demand" has exceeded supply.

    Lots of people have been buying gold in the hope it would rise. But the only way it can rise is if still more people buy it, hoping it will rise still further. And so on.

    What do we call an investment scheme where current members' returns depend entirely on new money brought in by new members?

    A Ponzi scheme.

    We now realize we had it all wrong - it is not Keynesianism that is the biggest ponzi, it is gold, whose price suppression practices by JPMorgan and the LBMA cabal is now the target of a DOJ inquiry... Oh oops, the WSJ forgot to mention that part.

    The WSJ's "powerful" conclusion

    Yes, as I wrote earlier, gold may well be the next big bubble. And that may mean there is big money to be made in speculation.

    But I don't trust it as an investment.

    Something tells us that John Paulson, who has 30% of his fund now tied into gold, will read this article and rush to sell, sell, sell. Or not.