Worth Its Weight in Gold

For some reason I have received an abundance of subscriber emails this week asking me about my thoughts on the direction of the price of gold. I suppose it might be due to the unexpected breakdown in the commodity's price in the face of rising geopolitical tension around the globe.

Back in the fall of 2011, gold (as an asset class) was embraced as an investment just as energetically as price momentum investors have clutched on to social media stocks today, with gusto from hedge funds (John Paulson et al.), other institutional investors and, of course, the retail lemmings.

Here is the five-year chart of the SPDR Gold Shares (GLD), indicating that GLD peaked at over $180 a share in September 2011 and closed yesterday at a bit over $122 a share. This coincides with the price of gold peaking at over $1,800 an ounce and compares to the price this morning at about $1,270 an ounce.

"[G]old [is] currently a huge favorite of investors who fear almost all other assets, especially paper money of whose value, as noted, they are right to be fearful. Gold, however, has two significant shortcomings, being neither of much use nor procreative."

-- Warren Buffett, 2012 Berkshire Hathaway letter

In theory, gold is thought to prosper and be a valuable asset in a world of too much cowbell (monetary stimulation and solutions), where fear is rampant and the integrity of most currencies is waning in the face of the failure of governments to address fiscal imbalances.

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