Wall St Journal: Gold May Be In A Ponzi Phase

[Realistbear]

http://finance.yahoo.com/banking-budgeting/article/109666/why-i-dont-trust-gold;_ylt=AnO1PqTGXk8lUhoglZ5nxFK7YWsA;_ylu=X3oDMTE1NmFlMjVrBHBvcwM3BHNlYwN0b3BTdG9yaWVzBHNsawN3aHlnb2xkY2FuYmU-?sec=topStories&pos=5&asset=&ccode=

Why I Don't Trust Gold

by Brett Arends

Thursday, May 27, 2010

This is a very sad day for me.

In Part One of this series, when I argued that gold might be about to go vertical, I made a whole bunch of new friends among the gold bugs.

And now I'm going to lose them all.

That's because even though I think gold might be about to take off, I don't recommend you rush out and put all your money into gold bars or exchange-traded funds that hold bullion..../

Most of the new supply has come from mine production. Some, though a dwindling amount, has come from central banks. And a growing amount has come from recycling—old jewelry and the like being melted down for scrap. (This is a perennial issue with gold. I never understand why the fans think gold's incredible durability—it doesn't waste or corrode—is bullish for the market. It's bearish.) So if supply has consistently exceeded user demand, how come the price of gold has still been rising?

In a word, hoarding.

Gold investors, or hoarders, have made up all the difference. They are the only reason total "demand" has exceeded supply.

Lots of people have been buying gold in the hope it would rise. But the only way it can rise is if still more people buy it, hoping it will rise still further. And so on.

What do we call an investment scheme where current members' returns depend entirely on new money brought in by new members?

A Ponzi scheme.

Yes, as I wrote earlier, gold may well be the next big bubble. And that may mean there is big money to be made in speculation.

But I don't trust it as an investment.

It has been looking like a PONZI for some while IMO. Especially the ETFs who are "selling" hundreds of tons of gold a day without anything to back them up. But this article goes further and suggests the physical is also caught up in a classic ponzi.

[Injin]

http://finance.yahoo.com/banking-budgeting/article/109666/why-i-dont-trust-gold;_ylt=AnO1PqTGXk8lUhoglZ5nxFK7YWsA;_ylu=X3oDMTE1NmFlMjVrBHBvcwM3BHNlYwN0b3BTdG9yaWVzBHNsawN3aHlnb2xkY2FuYmU-?sec=topStories&pos=5&asset=&ccode=

Why I Don't Trust Gold

by Brett Arends

Thursday, May 27, 2010

This is a very sad day for me.

In Part One of this series, when I argued that gold might be about to go vertical, I made a whole bunch of new friends among the gold bugs.

And now I'm going to lose them all.

That's because even though I think gold might be about to take off, I don't recommend you rush out and put all your money into gold bars or exchange-traded funds that hold bullion..../

Most of the new supply has come from mine production. Some, though a dwindling amount, has come from central banks. And a growing amount has come from recycling—old jewelry and the like being melted down for scrap. (This is a perennial issue with gold. I never understand why the fans think gold's incredible durability—it doesn't waste or corrode—is bullish for the market. It's bearish.) So if supply has consistently exceeded user demand, how come the price of gold has still been rising?

In a word, hoarding.

Gold investors, or hoarders, have made up all the difference. They are the only reason total "demand" has exceeded supply.

Lots of people have been buying gold in the hope it would rise. But the only way it can rise is if still more people buy it, hoping it will rise still further. And so on.

What do we call an investment scheme where current members' returns depend entirely on new money brought in by new members?

A Ponzi scheme.

Yes, as I wrote earlier, gold may well be the next big bubble. And that may mean there is big money to be made in speculation.

But I don't trust it as an investment.

It has been looking like a PONZI for some while IMO. Especially the ETFs who are "selling" hundreds of tons of gold a day without anything to back them up. But this article goes further and suggests the physical is also caught up in a classic ponzi.

Can't help but notice that the number of nonsense threads about deflation has hyperinflated of late.

[Lord Lister]

Clearly he doesn't understand golds role as a currency, a safe haven, or a commodity. It's currency role alone will see it double in price in the next two years IMO.

His loss!

[plummet expert]

Clearly he doesn't understand golds role as a currency, a safe haven, or a commodity. It's currency role alone will see it double in price in the next two years IMO.

His loss!

Lord Lister you are right. There is no Ponzi scheme in Gold! If anything there is eveidence that Govts have tried to hold it back for fear that it's rise is a reflection on the falling value of fiat currency. Adjusted for inflation Gold would be above $2400 now. It will rise dramatically with fear and who hoards what and what amounts are on the planet will then have little to do with it. It will act as money because the paper money has gone into a hole and is seen as ....paper.

A ponzi scheme is something like Berni Madoff was running, where investors are teased in by imposssibly good returns and the administrator (Madoff) just spends your money and gets a very ordinary return on the rest whilst producing false accounts showing something better. He runs into trouble only when too many withdrawals means he cannot return the investors capital - as in the crash. Now it is the case an ETF which is actually labelled ETN (Exchange traded note) need not hold the physical substance, whilst an ETF should be. If you have physical gold and there is any kind of scam about the ETN's then it will put UP the gold price and Silver the same. Is that what this reference to Ponzi is about? I recommend holding the physical substance or use Goldmoney.com to do it for you.

I believe all of you out there should have a reasonable amount of gold or silver in this climate. It's just not safe to rely on paper currency or shares.

[plummet expert]

I would not believe the Wall St journal on this matter. Someone probably wants to cause a little fall out so they can buy more at a better price - a bank perhaps? They have been caught out giving contrary advice to clients than they give themselves. That's the sort of manipulation these matters are subject to IMHO.

[Britney's Piers]

Clearly he doesn't understand golds role as a currency, a safe haven, or a commodity. It's currency role alone will see it double in price in the next two years IMO.

His loss!

Absolutely.

People have accepted Gold as payment ever since the days of Babylon. Can we say that for the £ or the $? Cheaper Gold is good, it offers a chance to aquire more.

Edited May 27, 2010 by Britney's Piers

[cashinmattress]

Not sure what you have against people holding gold RB.

If the economy was on the uptick, globally, and Britain was leading the EU in productivity and GDP (not based upon financial services) then I think everybody would be quite happy to do away with gold.

Until that time, your one man tirade is getting silly.

Why not put some of your negativity into something more useful.

EDIT: And why are you posting stuff about gold as an investment? I think everyone on this forum agrees that it is a good preserver of 'wealth', but not a speculative instrument.

Edited May 27, 2010 by cashinmattress

[The Masked Tulip]

Isn't selling shares in non-existent gold mines or dug-out gold mines one of the oldest tricks in the book?

I mean, they have been making Westerns about such a thing for a 100 years now.

[_w_]

Gold investors, or hoarders, have made up all the difference.

Does he mean central banks, they are the biggest hoarders by far?

But I don't trust it as an investment.

Good for him, it isn't and never was an investment so perhaps he's learnt something since his previous article!

Anyway, RB thanks for this. I'm hoping for one big crash in gold and this shows cracks might be appearing in the market.

Can't wait.

[_w_]

Not sure what you have against people holding gold RB.

If the economy was on the uptick, globally, and Britain was leading the EU in productivity and GDP (not based upon financial services) then I think everybody would be quite happy to do away with gold.

Until that time, your one man tirade is getting silly.

It's a well documented psychological factor called cognitive dissonance. He dismissed gold as nonsense when it was $250 and now feels like a fool for missing it so badly. In such instance the instinctive reaction is to convince himself and everyone around him that he was always right.

Or in other words he can't admit to himself that he made a mistake.

[_w_]

It's a well documented psychological factor called cognitive dissonance. He dismissed gold as nonsense when it was $250 and now feels like a fool for missing it so badly. In such instance the instinctive reaction is to convince himself and everyone around him that he was always right.

Or in other words he can't admit to himself that he made a mistake.

Just for the sake of balance I'd like to add that without checking his every post, RB seems to be right more than 50% of the time. By any objective standard that puts him in the hear guru category. His recent call on shares (when he sold the lot) was perfect IMO. He just needs to know that he can't be expected to be right all the time.

[tpbeta]

I must admit I have pondered putting my precious STR fund into gold (instead of dollars) but couldn't bring myself to do it. Perhaps I've been foolish, given how well it's doing, and I wish the goldbugs well, but I fundamentally believe that despite all the money printing, the fundamental nature of the current financial crisis is deflationary. I can't bring myself to go against my instincts, no matter how good the numbers look.

I fear that gold is as much of a bubble as UK House Prices. When I hear people calling it (in so many words) a new paradigm, I am reminded of THAT graph. But I don't pretend to know for sure.

Edited May 27, 2010 by tpbeta

[Guest_chris c-t_*]

Gold is still insanely cheap.

RBCI © at work again. Thanks.

Over 100 years of history relatve to stocks.

http://www.youtube.c...h?v=ckFfzoplC-I

Relative to all the Money at Zero Maturity out there. Bubble? The bubble is in PAPER.

Edited May 27, 2010 by chris c-t

[lowrentyieldmakessense(honest!)]

Gold is still insanely cheap.

RBCI © at work again. Thanks.

that $15,000 - tis a moving figure - and not downwards unless the FED starts burning currency

[R K]

Not sure what you have against people holding gold RB.

If the economy was on the uptick, globally, and Britain was leading the EU in productivity and GDP (not based upon financial services) then I think everybody would be quite happy to do away with gold.

Until that time, your one man tirade is getting silly.

Why not put some of your negativity into something more useful.

EDIT: And why are you posting stuff about gold as an investment? I think everyone on this forum agrees that it is a good preserver of 'wealth', but not a speculative instrument.

Errrr - just for the record, what's the yield on gold as an investment rather than a ponzi speculative instrument?

[scepticus]

Can't help but notice that the number of nonsense threads about deflation has hyperinflated of late.

ofc your nonsense hyperinflated a long time ago.

[Errol]

Utter drivel.

[Guest spp]

Ok, How much are they paying you RB?

Where do you find the time to research something you have no interest in owning?

Gold and Silver has served as money throughout most of recorded history, so why should now be any different?

People are failing to notice one of the biggest ponzi's in history...paper currencies!

We could get a bit of a sell off if/when the market crashes again but the reset is fast approaching so it's not going to stay down for long.

Edited May 27, 2010 by spp

[Peter Hun]

Not sure what you have against people holding gold RB.

Simple really.

Gold prices crash when the economy recovers, as it always does. Gold went up to $800 and then eventually crashed back to $2-300 and stayed there for years.

The reason being that gold is fundamentally worthless, its only real use is a speculative asset for gambling. Its far worse than property speculation, after all you can get an income from land and property and there are far more useful hard and soft commodities out there.

The only reason to buy Gold is becuase everyone else is doing it. Now its too late, you should bought before the bubble.

[Crashman Begins]

Simple really.

Gold prices crash when the economy recovers, as it always does. Gold went up to $800 and then eventually crashed back to $2-300 and stayed there for years.

The reason being that gold is fundamentally worthless, its only real use is a speculative asset for gambling. Its far worse than property speculation, after all you can get an income from land and property and there are far more useful hard and soft commodities out there.

The only reason to buy Gold is becuase everyone else is doing it. Now its too late, you should bought before the bubble.

We shall see

[lowrentyieldmakessense(honest!)]

Errrr - just for the record, what's the yield on gold as an investment rather than a ponzi speculative instrument?

whats the interest rate banks are offering at the moment - adjusted for inflation

[aardvark]

Utter drivel.

+1

[Errol]

Now its too late, you should bought before the bubble.

Come back here when gold is closer to $5000 an ounce. I'll be interested to hear your take on it.

[Concrete Jungle]

Why I Don't Trust Realist Bear

by Concrete Jungle

[tpbeta]

I must admit my greed is on conflict with my better judgement when it comes to gold. But one thing always stop me and I'd welcome goldbug thoughts on that.

How do you know that a company like Bullionvault or the like really has the physical gold assets to back up its business. It seems entirely unregulated. Now if the Ponzi version of gold turns out to be true, one could stand to lose everything vry quickly in the collapse phase when everyone is desperately trying to liquidate their assets. Sure I could keep a gold bar under my bed but that doesn't seem very practical.