Chloe Lutts is a third generation (!) newsletter editor and has just launched Dick Davis Investment of the Week. In her first issue, she writes about ?gold?s trendiness?.
It?s hard to ignore a trend that everyone else is talking about ? it can make you feel like a third grader with no SillyBandz to trade. It can be especially hard if you make your living by writing about investing. I like to think that I have a sort of birds-eye-view of trends, thanks to the hundreds of newsletters I read. And I think it?s times to take a step back and remind ourselves of some fundamental, un-trendy truths to keep in mind about gold. Here they are:
The price of gold is set by supply and demand?it does NOT reflect the ?inherent? value of gold.
Accordingly, the price of gold CAN go down. The frequent characterization of gold as a ?safe haven? tends to ignore this fact. An investment that can lose a lot of its value, quickly, is not what I?d call a safe haven. Gold loses value when demand for it decreases.
And someday it will. Like any price that is ruled by supply and demand, the price of gold will only keep going up as long as people keep offering more for it. At some point, the people who want to keep buying gold at the current price and above will be outweighed by the people who want to sell it?we call this inflection point the ?point of peak perception.? This point occurs during times of euphoria: when everyone (seemingly) loves an investment so much that there?s (practically) no one else left to fall in love with it? and thus no one left to buy it, at higher and higher prices. The general feeling toward gold today looks a lot like euphoria.
Finally, remember that gold, unlike the stock of a company that makes and sells things, cannot grow. If you buy a bar of gold today, it will still be a bar of gold in six months (in fact, because gold is inert, it will still be a bar of gold in 1,000 years). Companies, on the other hand, can (and generally should) grow over time, by making more, selling more, acquiring other companies, etc. So, ideally, when you buy a stock, you?re buying the potential to own more in six months than you?re buying today. Gold, on the other hand, is always going to be the same exact thing?the only thing that changes is what people are willing to pay for it.
Still, you shouldn?t let any of those facts stop you from investing in gold if you want. As I said above, investing in trends can be a great way to make money?and they tend to last longer and go further than we expect. Just keep those four important truths about gold in mind, stick to a proven investing system, and try and keep some perspective.
Vietnam is one of the anticipated growth leaders in 2011 among economic forecasters. Happily, the country is about to get credit cards from Citicorp, which is launching its plastic in 'Nam. And a chain of Japanese groceries has signed a joint venture with a local company to offer more modern commerce there.
Attempts to invest directly in Ho Chi Minh City's bourse have been frustrated by the lack of local listed companies and the heavy hand of government so maybe the best way in is via foreign companies. Of course, a big payback from 'Nam in the stock of C is unlikely.
It's hard to invest in frontier markets when you can't find in-country stocks.
Mikhail Khodorkovsky has been sent back to jail, but not to Siberia, until after Christmas, as the court adjourned his third trial for the same offence. It officially is theft of oil from the company the oligarch once headed, Yukos, but in fact is having politically challenged then Pres. Now Premier Vladimir Putin's power.And the thieves were from Putin's camp, not Khodorkovsky's.
It's hard to invest in BRIC markets because of corruption, sleaze, and abuse of power.
Moody's is about to cut the investment rating of Spain which is already paying 2 1/2% more to lenders than Germany. Spain has to raise 170 bn euros to meet its deficit next year. Portugal is also having to pay more than it did only a month ago. This week, European leaders hold a two-day summit in Brusselsaimed at creating a more permanent floating crisis system by 2013. But Angel Merkel, the German Chancellor, said she will not accept any increase in the 750 bn-euro emergency fund for the Euro area.
It's hard to invest in developed markets when their monetary policy is held hostage by German greed.
And so, another day in the Global-Investing.com world begins. Apologies to paid subscribers for yesterday's truncated trading note. I left it to send while going off to the bank at Canary Wharf for some personal business, after which we took in ?A Woman of No Importance? (Oscar Wilde) produced by our buddy Alice de Sousa in Greenwich. The computador crashed before the whole note had been transmitted but I was not at my desk. A full report for paid subscribers will follow today along with news from Korea, Israel, Switzerland, India, France, Mexico, South Korea, and, yes, Great Britain.
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