Monday, August 22, 2011

$10,000 Gold

Jonathan Chevreau says that Nick Barisheff is about to publish a book titled $10,000 Gold: Will it happen sooner than you think? (see the middle of the article). The article also included an opinion about gold being overvalued, which creates some balance, but I’d prefer to stay away from these predictions altogether.

My first reaction to seeing “$10,000 gold” was to remember the 1999 book DOW 36,000 by authors who would rather remain nameless. Apparently, everyone had to pile into stocks or miss the 3-5 year ride on the DOW from around 11,000 in 1999 to 36,000. It’s now 12 years later and the DOW is still at around 11,000.

The only reason a book like DOW 36,000 made it to print with some likelihood of success is that in 1999 stocks had been on a terrific tear, and people wanted to believe that the party would continue. The same is true for a book today about gold reaching $10,000.

Apparently, Barisheff believes that a $10,000 gold price “could be justified.” I have little doubt that gold will eventually reach this price, if for no other reason than inflation. It’s also possible that the gold party will actually continue driving the price to $10,000 in a few years, but don’t count on it. Another possibility is that gold prices plummet as they did in 1980.

Another scary possibility for owners of gold is that the world starts to value gold for its practical and cosmetic uses rather than just having an irrational desire to own it. Gold owners rarely actually do anything with the yellow metal. The same could be said of stocks, but at least stocks are part ownership of a business that actually does things to make money. Gold just sits there.


  1. Other things sit around my house doing nothing, but I value them greatly as well.

  2. @Big Cajun Man: I suspect that those things sitting around your house doing nothing are unlikely to make you a profit :-)

  3. If I'm lucky my losses can be recuperated by a lot of laughter in my old age. My guess is they are as valuable as Gold Rings, and Gold Jewelery.

  4. I've read the theory that as long as interest rates are low, there will be one bubble after another as money is cheap and has to find new asset classes to inflate. We get a sequence where stocks are in a bubble, real estate is a bubble, commodities bubble up, etc. Perhaps antiques or art are next after gold falls off.

    Gold's price moves will indeed be tough to predict, for the reasons you and CC stated.

  5. @CC and @Gene: I see gold as a game of hot potato. You don't want to be the guy holding it when everyone figures out that the actual uses of gold don't come anywhere close to justifying its current price.

    1. The reply above is (in part) a reply to Canadian Capitalist's comment:

      Gold is a narrow market, so anything can happen if enough money rushes in. But counting on greater fools is not an investment strategy; it's speculation.

  6. I read a very rational opinion of a financial advisor who recommends gold. The only difference between his view and other gold bugs is that he says that "gold is NOT an investment" and goes on to prove this but ends up by deciding that gold is a preservation of wealth, an insurance against hyperinflation. After living through inflation of 120%/year, I tend to see his point. Besides, gold is NOT the only preservation - silver (with more economical value) is one, base-products companies that pay dividends are too and so on.

  7. @Andi: I see a broad index of world stocks as more likely to keep pace with inflation than gold.

  8. Just another flavour of the month, or year. Gold was a dud a few years back - it has since tripled in price. Nothing does that, only to come back down eventually.

    Then the flavour was real estate. Soon it will be platinum. Then back to oil. Around and around it goes.

    The beauty of holding some dividend-paying companies or broad-market ETFs that invest in all of this stuff is, you never have to worry about getting off the merry-go-round at the wrong time.

    Just wait your turn and enjoy the rewards of being patient.

  9. @Mark: Agreed. I'm happy to just watch the merry-go-round and not try to figure it out.