Seasoned Investors Turn Their Backs on Gold

The "recovery" has prompted an appetite for more "productive" investments...

EVEN SEASONED travelers can make remarkably dumb mistakes, writes Daily Reckoning founder Bill Bonner.

That's why we are writing to you from Baltimore rather than from Beijing. For the second time in a single week, we got to Dulles International Airport yesterday and discovered that we lacked the proper visa for travel to China. We had forgotten that you need a visa at all.

You don't always go where you intend to go, but you always end up where you ought to be. Why ought we be in Baltimore? We don't know. But here we are.

Even seasoned investors make mistakes too. And now they seem to be selling gold. Yes, dear reader, our favorite metal is taking a beating. Gold has dropped below $1,600/oz. The best investors are said to be abandoning their yellow metal for more "productive" positions. From Bloomberg:

'Billionaire investors George Soros and Louis Moore Bacon cut their stakes in exchange-traded products backed by gold last quarter as futures dropped the most in more than eight years. John Paulson maintained his holding.

'The fourth-quarter decisions by Soros and Bacon may bolster speculation that gold's 12-year bull run is coming to an end as economic data from the US to China show signs of recovery, curbing haven demand.

'Soros Fund Management LLC reduced its investment in the SPDR Gold Trust, the biggest fund backed by the metal, by 55% to 600,000 shares as of Dec. 31 from three months earlier, a US Securities and Exchange Commission filing showed yesterday. Bacon's Moore Capital Management LP sold its entire stake in the SPDR fund and lowered holdings in the Sprott Physical Gold Trust. Paulson & Co., the largest investor in SPDR, kept its stake at 21.8 million shares.'

And under the headline 'Gold Sinks Through $1,600 on Recovery Hopes,' the Financial Times adds:

'Gold prices tumbled... for the first time in six months as investors turned to other assets amid hopes of an economic recovery.'

Recovery? The US, Eurozone and Japanese economies are all (according to the most recent quarterly results) shrinking, not growing. What kind of a recovery is this?

Nevertheless, mainstream opinion believes this is no time to cower in the safety of cash...or gold. Take chances. Buy stocks! Look at Buffett. He's teamed up with a Brazilian tycoon; they're paying $28 billion for a ketchup company.

Well, what do you think? Are they right?

Why would you ever want to hold gold, anyway? It is dumb and lifeless. It issues no upbeat press releases. It never 'beats analysts' estimates'. It doesn't come out with a slick new handheld device...or announce a major acquisition.

None of the good news you hope to get from an investment ever comes from gold. No matter how much you own, it doesn't seem to care about you; it makes no effort whatever to increase shareholder value.

Instead, it just sits there...like an old umbrella next to the front door, only useful when it rains. War? Gold goes up. Market crash? Gold goes up. Inflation? Gold goes up.

End of the world? Who knows, maybe gold would go up too.

So, you decide. What's ahead? Good news? Or bad news? Will the 100 leading economists be right...or wrong? Fair weather...or foul?

It's impossible to say. So, we hedge our bets. We own some real investments – stocks, bonds, real estate – and hope the 100 leading economists know what they are talking about.

And we hold on to our gold too...in case they turn out to be the numbskulls they usually are.

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