Today a famed short seller ripped the Wall Street Journal a new one for publishing more anti-gold propaganda.
By Bill Fleckenstein President Of Fleckenstein Capital
April 4 (King World News) – Overnight markets were essentially a nonevent, and the indices here initially tried to rally, but didn’t really get very far, such that by midday they were fractionally lower, led by the Nasdaq, which was off about 0.4%. The only feature of the morning action was that some of the high-fliers were disproportionately weak, which is why the Nasdaq led the charge to the downside…
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Bill Fleckenstein continues: Over the course of the day the market meandered around the lows but never really went anywhere, while away from stocks green paper was mixed, with the yen particularly strong, oil lost 3%, fixed income was higher, and the metals were lower as silver fell 0.75% to gold’s 0.5%.
Gold Bear Reasoning Lacks Intrinsic Value Now
I’d like to comment on a particularly ridiculous article about gold in today’s Wall Street Journal headlined, “Don’t Bet On Gold Rally to Last.” Before I start, let me say that I don’t often take the time to respond to mainstream media gold coverage because they are nearly universally negative opinion pieces and never have any real data. As I have noted many times, everyone who can spell “gold” has an opinion, but most of them are ill-informed and, unfortunately, there isn’t that much to know because, as I have also stated many times, gold is “just a price.”
As for today’s article, it begins, “Gold investors should enjoy the party while they can. The good times are probably coming to an end.” So naturally you’d want to know why, and here is what Mr. Steven Russolillo claims. The reasons people want to own gold don’t take into account “a fundamental analysis of its intrinsic value: it doesn’t really have any. Unlike many financial assets such as stocks, bonds, real estate, and others, gold doesn’t generate any income.”
Forgetting for the moment that real estate is not a financial asset, consider bonds. He and many others don’t seem to understand that they don’t have any “intrinsic value” either. They are a promise to pay. In other words, they are a liability of someone else, and there is no guarantee you will get your money back. However, they do produce an income stream (at least they used to). However, what comes as no surprise to anyone on the planet, except mainstream journalists apparently, is that the lion’s share of G-7 government bonds don’t yield anything, and in fact you have to pay to own many of them.
Russolillo does make one statement that is very close to accurate regarding one of the problems with gold when he states, “Valuing it is virtually impossible.” That is partly what I mean when I say gold is just a price. Virtually all the gold ever mined, which would fit in two Olympic-sized swimming pools, is still in existence and worth about $7 trillion at today’s prices. Every year about 2,800 more tonnes are created. And those (besides the cost of production) are really the fundamentals.
That’s a Lot of Work For Something “Worthless”
As for intrinsic value, which so many knuckleheads say doesn’t exist over and over again, we do know it costs somewhere between $800 and $1,200 an ounce to produce gold. That’s part of the reason the miners were destroyed over the last three years, as everyone got their heads around how expensive gold production is. So people who say it has no intrinsic value or that the market is a bubble obviously have no understanding of how difficult the business actually is, while anyone who has owned a mining stock for more than a quarter already is well aware of the challenges. If the price were stupidly high, as all these articles would have you believe, gold mining companies would be swimming in profits, which has clearly not been the case, though it will be eventually.
The rest of the article is the usual bearish nonsense that you can read virtually every day. I suppose we will know that the gold bull market really is getting late in the day when folks like this journalist and all the others start suggesting that the price of gold can only go up and maybe we will have some dead fish proclaim somewhere that a mining company is going to be the first $1 trillion market cap, as they like to do periodically about certain tech stocks.
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