Selling All My Gold (Not!)

Fisher on Gold

Anyone care to receive a prize? What is the fatal flaw(s) in the above presentation? Another case study in why you must IGNORE the pundits and Wall Street. What proof can you provide that the above video is nonsense?

If you don’t answer the question, then you will end up like this guy: http://youtu.be/qPGUM5PZWEw 

or………….

6 responses to “Selling All My Gold (Not!)

  1. “Gold is not an inflation hedge. It is just a commodity. Shot up in 1970s and fell in 80s and 90s with lots of volatility like other commodities.”

    Assuming we define inflation as ‘a drop in the purchasing power of money that results when a central bank creates more money than its public wants to hold’, then inflation will cause the exchange rate of the currency to fall. We also know that gold and currencies are negatively correlated. Therefore, gold is an inflation hedge!
    Sources: http://www.clevelandfed.org/research/commentary/2008/0608.cfm
    http://www.macro-investing-strategy.com/gold-correlation/

    “Gold is more volatile than stocks with lower long term returns” & “Finance theory dictates higher volatility should have higher longer term returns to compensate for conditional volatility over time. Opposite is true. Stock is easily beats gold in risk/return. Commodity is boom and bust…very hard to time. Gold bust can be significantly longer.”

    I cannot say whether it is more volatile since there are many measures of volatility (historical standard deviation, realized volatility, implied volatility). However, gold returns are not lower if we look at gold returns after 1967 when the peg to currencies ended.
    Also, volatility is not risk!!!
    Source: http://www.zerohedge.com/contributed/2013-11-23/gold-beat-stocks-except-during-tech-bubble

    “Gold is in a bear market now”

    Only time will tell…

    Looking forward to your thoughts and some constructive criticism!

    • Sorry Terminator: Your comment was held up in the spam filter.

      I don’t know what question or comment you want me to answer?

      Go here and click on research–read everything: http://www.myrmikan.com.
      The fact that gold is money (not a currency in many places) is self-evident based on 10,000 years of history. It is commodity money.

      You should be asking why does anyone place any value in the US dollar? It is backed up by 8,000 tons (we hope!) of gold and 43.7 trillion in long-dated bonds and MBS. The dollar is simply the Fed’s liability. What happens IF/WHEN interest rates rise? Say goodbye.

      Best,

  2. I don’t see anything. Oh man, I hope my comment went through.

    • Whoops: You answered the flaws well. But you missed one major one:

      Gold is NOT an investment per se like stocks. Gold throws off no earnings or dividends. It is an asset/money. Does it make sense for the author of the video to compare the returns of the stock market in relation to the US dollar?

  3. Ah, I see. Following that logic, then currencies and commodities and derivatives on them are also not investments. Then stock returns can only be compared to bond returns and not any other asset class. Right?

    p.s. do I get a prize? lol

  4. Looking at the charts it actually seems like gold has been a pretty good diversifier. But it sure took a long time to recoup your money if you invested in gold at late 70s high.

    If you can expect to earn average long run stock returns every year you wouldn’t own other asset classes that produce lower returns than stocks.

    Looking at likely future stock returns when PE Shiller, Tobin Q, corporate profit to market cap are at these levels (as well as weak macro outlook, currency wars, high margin debt etc) it makes all the sense in the world to look at alternatives to holding stocks at this point in time.

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