http://ContrarianEdge.com/2009/06/17/as-investment-golds-just-a-brick/ Vitaliy Katsenelson blog on the economy, stock market, and stocks. Applying Active Value Investing approach. Sun, 21 Mar 2010 14:46:01 +0000 http://wordpress.org/?v=abc hourly 1 http://ContrarianEdge.com/2009/06/17/as-investment-golds-just-a-brick/comment-page-1/#comment-190478 mcgoverntm Fri, 19 Jun 2009 14:28:18 +0000 http://ContrarianEdge.com/?p=1125#comment-190478 I agree with what was said in this essay with the exception of the statement at the end that "gold’s monopoly as an instrument of choice at the time of fear and uncertainty has been undermined by other very capable and often superior financial instruments." The other financial instruments mentioned as superior to gold have not been tested during a "time of fear and uncertainty;" it remains to be seen how they would perform. The main hedge mentioned, TIPS, seem sound in principle, but there's one big problem: the issuer of the inflation-indexed bonds also decides what the rate of inflation is. Would you trust any other issuer under those conditions? If not, why would you trust the US government? Have the federal government's CPI numbers accurately reflected economic reality? Do you trust that they will in the future? Gold may not have been a good investment over the past 200 years (no data was provided to support this statement), but gold has endured as a store of value for thousands of years while fiat currencies have been created and then collapsed and died. A better comparison (and I don't know the answer) would be to compare the investment performance of gold to other assets during times "of fear and uncertainty." The Great Depression and the Weimar inflation are two historically-recent periods that would qualify. I agree with what was said in this essay with the exception of the statement at the end that “gold’s monopoly as an instrument of choice at the time of fear and uncertainty has been undermined by other very capable and often superior financial instruments.” The other financial instruments mentioned as superior to gold have not been tested during a “time of fear and uncertainty;” it remains to be seen how they would perform.
The main hedge mentioned, TIPS, seem sound in principle, but there’s one big problem: the issuer of the inflation-indexed bonds also decides what the rate of inflation is. Would you trust any other issuer under those conditions? If not, why would you trust the US government? Have the federal government’s CPI numbers accurately reflected economic reality? Do you trust that they will in the future?
Gold may not have been a good investment over the past 200 years (no data was provided to support this statement), but gold has endured as a store of value for thousands of years while fiat currencies have been created and then collapsed and died. A better comparison (and I don’t know the answer) would be to compare the investment performance of gold to other assets during times “of fear and uncertainty.” The Great Depression and the Weimar inflation are two historically-recent periods that would qualify.

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