Monday , 21 August 2017


Is Gold a "Greater Fool" Asset?

I believe the terminology “investing in gold” is a misnomer.  Speculation is a better fit for the argument to own gold than considering it an investment. [Let me explain.] Words: 606

So says Glen Bradford (www.glenbradford.com)  in edited excerpts from an article* which Lorimer Wilson, editor of www.munKNEE.com (It’s all about Money!), has further edited ([  ]), abridged (…) and reformatted below  for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. Bradford goes on to say:

What would you would be willing to pay for an ounce of gold if one individual decided to acquire all of the gold in the world and bury the cube underground? I believe that at that point in time, gold would cease to be a store of value. Right now, all the gold in the world allegedly fits into a 67-foot cube. Half of the gold out there is owned by central banks.

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Going forward, I am going to define an asset as something that if you owned all of it, its value to others would not go down. Here are a few examples.

Equities: I believe that if I acquired all of the gold in the world, it would become worth much less to others. In contrast, I believe that if I purchase all of the outstanding shares of Google, Apple, or any company that is growing and producing greater discounted streams of future value, the companies would more or less be worth the same to others. In all probability, the value of the companies would likely go up over time if I picked the right ones.

Farmland: Consider purchasing all of the farm[land] in North America. You can acquire all of the farms and the underlying value isn’t likely to decrease, all things equal. Farm ground can be worked to generate consistent future income and growth. Does it make sense that one should be able to trade all of the gold in the world for all of the farm ground in North America?

Oil: If I acquired all of the oil in the world… just look to Saudi Arabia for the answer to this question. OPEC has become enormously wealthy simply because it has the majority of the oil.

In summary, gold is one of those things that has very little intrinsic value but holds value because it has always held value. It’s this type of thinking that puts you into bubble territory. If this ceases to be the case as I expect it to, it will become the definition of what a “greater fool” asset is [defined as being].

Conclusion

If you have developed a love affair with gold and will never sell it at any price. I think that’s fine…[but] if you think gold is “safe,” I urge you to reconsider. The timing for a collapse seems appropriate. At this point, fear is receding and gold is set to recede along with the fear. 

* http://seekingalpha.com/article/287138-gold-bubble-is-epic?source=email_macro_view  

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Editor’s Note:

  • The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
  • Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.