Don't Invest in Gold, Ever

Just keep buying and holding instead...

The PRICE of GOLD, writes Bill Bonner at Bonner Private Research in this note re-posted at The Daily Reckoning.

Wasn't it supposed to go up, not down?

And now...how far down will it go? And if it goes down in a crisis...what good is it?

"Gold sees biggest weekly loss in six years," says Kitco, "faces more downside as inflation threat sidelines central banks."

One of the little tricks Nature plays on investors is to make gold the safest asset you can hold...and, at times, one of the riskiest.

When people begin to see it as a way to make easy money, the seat belts come off and the airbags are disabled. Then, gold becomes a speculative asset, with millions of people betting that it will go up...

...and driving up the price to unsustainable levels.

They also leverage their gold holdings, to get more traction with them.

They are not gold buffs; they are gold bulls, betting that the price will go up. Then, when the speculative markets go 'risk off,' they sell their gold to return to the (short-term) safety of Dollars.

This is what seems to have happened, triggered by a near-panic in the Near East.

The Gulf states, with their vast deposits of oil-business assets, suddenly saw earnings dry up. The closing of the Strait of Hormuz left them with their oil...but no way to trade it for Dollars. Short of cashflow, they sold their most liquid asset, gold.

At least, that is the story that is being told to investors. We happened to be in Zurich over the weekend visiting an investment manager. His phone rang off the hook last week as clients looked for answers. We just happened to be in the office when a call came in.

The caller was unhappy because his investment manager had not sold off his mining stocks when the shooting started. But who knew? Would it be a short, decisive war − a la Venezuela − or a real quagmire − a la Afghanistan?

A gamble is just a gamble; it could go either way. And who wants to bet against gold? It was the star performer for the last 26 years...and the most reliable performer since the Flood.

Was he to abandon it, just because the price corrects a little? Isn't this one of those moments that separate the real pros from the amateurs?

But we're all amateurs. Some of us do serious research. Others play the markets like gamblers at the slot machines. And we all have ideas, opinions, guesses; we take our losses as 'bad luck'...and attribute gains to our own genius.

"I think we're going to see a big run-up in the stock market," said the caller. "Because Trump is cleaning things up. All around the world. Eventually, that will show up in stock prices. I just want to go to cash now so I'll be able to buy back in when prices start going up again."

Will he get lucky? Will his insight pay off? Maybe.

Here at BPR, we deny genius and don't trust luck. We don't recommend 'investing' in gold, ever.

We are HODLers − holding on for dear life − not gold investors or gold speculators. We use gold for holding our place in line, not to make money. The price of gold goes up and down. But it's almost incidental. We count our wealth in ounces of gold, not Dollars.

So, a drop in the gold price has only a brief, notional effect on us.