The Experts Are Wrong Again

Bloomberg December 2015: But Societe Generale predicts gold will be a casualty of the rate hike, falling below $US1000 an ounce, to $US955 by the end of next year.

Head of global asset allocation Alain Bokobza says looking at the 2016 panorama, in which US interest rates tighten and the economy fares reasonably well, “that does not argue for a higher gold price.”

“Gold will be a casualty.”

CSInvesting: The purpose of this post is to remind you of ignoring expert advice and to do your own analysis.  The above comment by Bokobza is meaningless blather.   He is simply spouting the consensus view that rising rates mean a declining gold price since gold has no yield.    Beware of simple narratives.

The assumption “Fed rate hikes equal a falling gold price” is not supported by a shred of empirical evidence. On the contrary, all that is revealed by the empirical record in this context is that there seems to be absolutely no discernible correlation between gold and FF rate. If anything, gold and the FF rate exhibit a positive correlation rather more frequently than a negative one!    Source:

And today:

More here: Gold and the Federal Funds Rate and Gold and gold stocks Dec 26 2017

UPDATE: Interesting Read

  1. Update: David Collum’s 2017-Year-In-Review-PeakProsperity-final
  2. david_collum-30_years_investing
  3. 2016-Year-In-Review-PeakProsperity

Interview of David Collum:



7 responses to “The Experts Are Wrong Again

  1. How big percentage of a portfolio do you think is reasonable to hold in gold or gold related stocks?

    • Reasonable to whom and for what?

    • I am about 60% in resource stocks especially royalty companies with the majority of that 60% in gold/silver/copper resource companies.

      This is a function of two things: The monopolies like Google, Amzn, NFLX seem too expensive relative to their political risks in my opinion. Franchises are bid to perfection in my estimate.

      Miner equities have been starved for capital over the past seven years and are at the cheapest prices relative to the past 100 years. Insider buying is off the charts. However, miners (next to shippers) are TERRIBLE businesses subject to huge capital needs, big boom bust cycles and other difficulties–but at a certain price, I will buy.

      I don’t recommend gold stocks for anyone. You have to go company by company. Also, I am not you so it is not proper to tell you what to do. If I told you to marry a certain type of person, you would be insulted.

      Junior resource companies can move up and down 20% in ONE DAY!

      The first goal is to understand yourself and how you match up with the “opportunity.”

      • Thanks for the reply. That’s a huge percentage. I hope you crush it.

        I think the market is strange. Many gold stocks are more expensive now compared to just a few months ago when the price of gold was actually higher. I guess it shows how big a role market sentiment plays.

  2. My analysis would not pass certain econometric t-stat tests I am sure, but quite simply, gold and stocks have an inverse relationship with an average annual performance gap of 26% annually over the last 45 years. The r-squared is quite low, but I think the relationship is easily explainable as the difference between high confidence in the future (high equity prices) and low confidence in the future (desire for safety of gold). So, if you are worried about the level of “exuberance” fading, gold represents a potentially attractive uncorrelated or
    negatively correlated hedge.

    • Yes, research has been done by Sun Valley Gold on the negative correlation between gold and financial assets.

      But miners are a spread business between gold/silver for example and their input costs. Mining is a hyper cyclical business. And the cycle is near a trough due to lack of investment. Miners are supply constrained. History says price must rise to ration supply/demand.

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