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.