Gold Is A Commodity, Not A Currency

“Right now, gold is less than an ideal investment.”


Gold prices are now down slightly year-to-date, 13% below its 2012 highs of near $1,800, and 18.7% below its all time high of $1920.

I spoke with Paul LaMonica of CNN/Money about having Gold exposure, and more importantly, how investors should think about Gold:

“Ritholtz, who said his firm does have a position in gold, said that having some gold investments makes sense. Gold should rise when the U.S. dollar is weakening and inflation is a worry.But he added that the biggest problem with the metal is that it’s not as easy to objectively value it like a stock or bond. Still, he said some investors treat gold like a “cult” and refuse to believe that the prices can ever go down.

“Gold doesn’t have any earnings. It doesn’t pay you interest. It’s a shiny yellow metal. Its value only comes from its relative rarity. It should trade on supply and demand,” he said.

Gold is a commodity first and foremost, not a currency. Commodity prices, even for something like gold that doesn’t have as much commercial use as other metals, tend to closely track consumer demand. So it should be no surprise that gold prices are now tumbling.”

The other factor to note: Inflation is rather modest versus the 2003-07 period, primarily due to unemployment and capacity under-utilization. The case for gold gets stronger in a money printing environment when the economy gets better, and inflation picks up.

Last July, I noted “Gold was a trade, not a religion” at a conference. There were scattered boos and catcalls.


‘Au’-sterity for gold as prices plunge
Paul R. La Monica
CNN/Money May 14, 2012

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