Someone forgot to send a “dollar is way up” memo to the gold trading pits this morning; the yellow metal was up by $10, (at $1,671 on the open) aiming for a demolition of the recent $1,675.00 record, despite a heftier than hefty rise in the greenback (what’s wrong with this picture? Everything) following central bank interventions this week. Contrarian sign of the times: JP Morgan wants you to stay long commodities, with gold their “top pick.” Now, be fair: you know how that headline would have been treated in certain circles not many months ago. Now, it will be added to the string of ‘validations’ being trotted out to induce the small retail investor to buy more of the metal at, or near record levels.
321 Gold’s Founder, Bob Moriarty recently offered this passage of timeless wisdom to his many readers: “People buying gold at $252 in 1999 were paying the lowest real price for gold in a century. They were investors. People buying silver at $4 in late 2001 were buying at the lowest real price in 5000 years. They were investors. You can almost never get hurt buying at record lows when the price of a commodity is below the cost of production.
Speculators on the other hand get smacked on a real regular basis. They depend on more and more people coming into the market. They are speculating on future prices. Regardless of what you think about the future of the US dollar, $1637 gold isn’t a record low and you are not an investor by buying at that price. You are a speculator only. You can view gold as a form of money; it has some features of money as does silver.
Bob adds that: “Gold and silver are assets. But gold and silver are not wealth. Wealth is some productive asset that provides a real after tax return.” None of this means that Bob (or this writer) want you to be without the core, essential protection that gold has always offered and probably always will; it’s just the “investment” approach and portfolio weighting that is being brought into question here when such prices are crawling across the boards as now.
Yesterday we brought you the news that (some) gold miners have apparently begun to actually hedge production after a long spell of doing the opposite and helping prices achieve sizeable gains in the process. Not long after we drew attention to the topic, Marketwatch.com ran a story titled “Forward Sales Suggest Fears Prices May Fall” in which it cited several producers whose activity is tilting towards protective strategies.