Reading a recent commentary by Jon Nadler, of Kitco Metals Inc.- an excellent source of quality information and opinions – I was struck by this quote.
“Matthew Clark, financial planner at Thomas Westcott Financial Management, said he was cautious about the hype surrounding gold.
“Gold is now firmly in this camp and the rapid rise to around $1,400 looks like we are getting into bubble territory. I am sceptical [sic] of the inflation-protection offered by gold; its record is patchy, whilst over the last 10 years returns have been spectacular, anyone holding gold in the 1980s and 1990s had a miserable time, typically suffering a reduction in value of more than 50%. As the global economy recovers and governments pay down debt, I expect gold will lose some of its sheen as the ultimate safe-haven.”
First of all, what have the 1980’s and the 1990s got to do with gold prices today? It’s like suggesting that the demand for computer chips today is a bubble, because the demand for computer chips in the 1980s was very low.
No, the analogy between computer chips and gold is not a particularly good one. But it does serve to illustrate that you can’t use data from thirty years ago as a predictor of what might or might not happen this year.
Secondly, what about this line, “As the global economy recovers and governments pay down debt…”
Assumptions, anyone?
Mr. Clark makes this statement on the assumption that the global economy will recover and governments will pay down their debts. Even if he is correct about the first assumption – the economic recovery – just how long will it take for his second assumption to come true – the paying down of national debts? Twenty years, maybe?
I have no axe to grind with Mr. Clark. But these kinds of statements and predictions are so typical of so-called investment professionals. Most are laced with unfounded predictions, built on a house of cards, supported by invalid assumptions.
When you make your own choices about buying or selling gold, be sure to be very cautious and critical when reading the opinions of any investment professionals.
And watch out for my second instalment on this topic – coming soon – where I’ll be looking at how journalists and investment professionals point to unfounded causal relationships between world events and gold prices.