I have talked about “investing” in gold before….
Over 200 years the value of gold in relation to real dollars – has barely changed! Notice the spike for gold around 1980? In a few short years the price went from $200 to over $850. The media went crazy and we were told that gold was a great investment, then the price fell to below $400. Gold did not get back above $85o until 2008! 28 years to break even!
For years I have been saying that gold is in a new bubble! In just a few years it has gone from $800 to $1,800!
Here is the opinion on John C. Bogle (Founder of Vanguard mutual fund company).
“ …gold is largely a rank speculation, for its price is based solely on market expectations. Gold provides no internal rate of return. Unlike stocks and bonds, gold provides none of the intrinsic value that is created for stocks by earnings growth and dividend yields, and for bonds by interest payments. So in the two centuries plus shown in the chart, the initial $10,000 investment in gold grew to barely $26,000 in real terms.” Common Sense on Mutual Funds(2010), Page 13.
Damn! Note: It the chart above Stocks went from $10,000 to almost $5,000,000,000!
Here is what Warren Buffett said….
“I will say this about gold. If you took all the gold in the world, it would roughly make a cube 67 feet on a side…Now for that same cube of gold, it would be worth at today’s market prices about $7 trillion – that’s probably about a third of the value of all the stocks in the United States…For $7 trillion…you could have all the farmland in the United States, you could have about seven Exxon Mobils and you could have a trillion dollars of walking-around money…And if you offered me the choice of looking at some 67 foot cube of gold and looking at it all day, and you know me touching it and fondling it occasionally…Call me crazy, but I’ll take the farmland and the Exxon Mobils.”
There has now been a spark and the run is on! What was that spark? The small island nation of Cyprus! As part of their bailout they are forced to sell… GOLD. Lots of gold.
Cyprus is going to sell 400 million euros ($525-million) worth of gold reserves to finance part of its bailout…
At current prices it means that Cyprus will sell around 10.36 tonnes of gold…
That is a lot of gold and it has not even hit the market yet. Gold prices have been falling for months but this was the last straw. Gold fell by more than 9% – TODAY! It is now down 28% from the high of $1,888.70. Today the close was $1,361.
If 1980 is our guide… gold could fall well below $900 in a few months.