Monday, July 20, 2015

Glad I'm not a Gold Bug!

Gold, and other commodities (especially precious metals), are always being touted as investments that increase in value when the markets get squirrely. The bond market is certainly odd right now, with treasuries costing the issuer more.  This is related to the liquidity trap.  Investors are worried that they will  not be able to sell bonds easily, leaving no easy place to park money.

A gold bug is someone who irrationally expects the sky to fall (markets to crash, life as we know it to cease, or the dissolution of civilization), and their full position in gold and other precious metals to pay off. Frequently gold bugs can be seen on the Discovery Network swimming underwater to find raw gold on the sea floor or living in desolate Alaska strip mining hills and operating large crushers and wash plants. Their efforts usually seem to pay off, at least on the shows, but in real life the over exposed precious metals investor is usually bankrupted by market conditions. We studied a case study in MBA school of a gold mine in Canada.  The investors made money on an exhausted claim until they pushed it too far and lost everything.  Losing everything is usually the fate of people who are emotionally invested in their investment position, the way gold bugs are emotional about gold.

Commodities, stocks and bonds frequently trade places.  Usually when one is up the others are down because people are moving their money in between investments. The decrease in Gold seems a little drastic lately, though.  Market forces could be to blame.  Anonymous sellers sold 5 tons of gold in China last night. Other factors are the resolution of the Greece crisis, low inflation, high flying stock market, and dozens of better places to put money.  Still though, Gold hit a 5 year low yesterday.  And that volatility makes me happy I'm not a gold bug!