In Many Financial Advisors Still Ignorant of Gold’s Place In A Diversified Portfolio Part 2 I spoke about how the financial services industry has resumed their attacks on gold as a viable diversification asset class and about one particular CFA who seems to be quite vocal against gold that I had a debate with on the financial website Seeking Alpha.
In Part 3 I will reveal a conversation with an additional CFA who decided to chime in on the debate as to whether gold is to be considered as a must for one’s portfolio. This conversation is with a person that has the nickname “pier0188” and can be found by going to the article Is Gold’s Golden Era Over? For some reason pier0188 doesn’t want to go by his real name. I don’t know what he is afraid of. If you use your real name you would think if you are right, you’d garner more clients. On his profile he says he’s an MBA, CFA.
NOTE: It was at this point I really chose not to talk to pier any longer because he tries to claim I said certain things when in fact I did not (favoring paper gold). His putting thought together in eloquent prose is all over the place making accusations about the church and stealing money. And he was 100% wrong about the historical rate of dividend return. So I wrote the following to him, which was later taken down by Seeking Alpha, which I knew it would be. My point was for him to try and pass the scrutinizing that Seeking Alpha does when trying to get them to make one of your posts an article. It’s not easy, and this particular CFA chooses to hide his real identity. Why?
pier0188,
Write an article. Submit it to Seeking Alpha and tell your brilliant side of the story. If you pass their editorial review, I’ll continue the conversation.
Jan 31 10:06 AM Reply ! Report abuse +3 -2
Take your toys and go home when you’re challenged. Far easier to write a book where you don’t have to answer your critics than actually have to prove your information and positions to somebody who can, and will, challenge your positions.
Enjoy shilling gold, hope you make tons of money off of the backs of other people, the same way as the CFPs and CFAs you constantly deride.
I do fully expect you to apologize to the multitudes of investors you pumped if this whole gold thing turns out badly for them. In fact, I would expect you to write several articles on here, just as you would if gold kept going up and you were “right”.
Jan 31 10:11 AM Reply ! Report abuse +2 -5
yes Pier…and I am sure people listen to your jibberish…
Jan 31 10:17 AM Reply ! Report abuse +3 -2
I don’t need to write a book or be a contributor here for my points to be valid. You could attempt to refute those points but do not want to. Why? I have no idea but I suspect it’s because you really cannot refute them well at all.
Basically, all your argument boils down to is momentum. Gold has historical psychological momentum that makes it valuable. This psychological momentum is nothing more than a numan construct of value. The single key factor in fiat currency is intrinsic value. Intrinsic value is defined (loosely from Wiki)…
“An intrinsic theory of value (also called theory of objective value) is any theory of value in economics which holds that the value of an object, good or service, is intrinsic or contained in the item itself. Most such theories look to the process of producing an item, and the costs involved in that process, as a measure of the item’s intrinsic value.”
Considering that the intrinsic value inherent in gold is nothing more than its industrial uses. The industrial uses are comprised of approximately 75% of all annual gold consumption. Considering that the price of gold is ~1,300, then the intrinsic value of gold is 350, which doesn’t even account for price elasticity.
So that means that 75% of gold’s value is nothing more than psychological love for baubles, much the same as many societies in the past valued baubles.
That isn’t fiat? What, in fact, is the real “value” of gold? It can’t heat your house, it can’t feed your kids, it can’t be burned to move your car.
In fact, the only real value for gold is transactional, a medium for exchange. Thus, its only value is floating metrics of human construct, exactly what any paper currency uses.
This construct is massively eroded by the usage of futures and options on futures which are derivative contracts not tied to anything intrinsic. This creates artificial supply AND demand, which is effectively a zero-sum game, but overall just increases the demand and news for gold. This is inflationary for gold. You’re doing nothing to enhance the intrinsic value but you are doing everything to increase the non-intrinsic value, aka, inflation.
Those “short” interest in gold or silver are derided and even are subject to shadowy innuendo of conspiracy for those who love gold or silver.
This, ultimately, is your downfall. You fail to understand that the relationship with gold is just as prone to bubbles as anything else. In fact, gold is a very poor hedge for inflation and an even worse store of long-term value, especially since you can’t even measure gold’s actual ability to produce anything of value. This is what consumer staples stocks offer far better tracking to inflation, especially since they are more staid and less prone to speculation and over-leveraging.
of course, housing is also a far better inflation hedge. But overall, the value for any inflationary protection, as the gentleman above said, is that you purchase it at a good VALUE and one not prone or in the middle of a speculative leveraged bubble. This is why gold is a poor investment.
Jan 31 12:28 PM Reply ! Report abuse 0 -2
After giving things some more thought, I went ahead and replied to pier0188:
I received no reply from pier0188 to this.
For those who made it through all three parts of this article, I give you credit. If you went further and read the actual articles on Seeking Alpha and the multitude of comments to them, I give you even more credit. Now you have a little taste of what I do on a daily basis in fighting the good fight against those who would try and keep you from insuring your portfolio by diversifying into gold. It doesn’t matter to me what credentials or education a person has. What matters to me, is the economic data and a simple understanding of our past monetary history and the Federal Reserve system. The bottom line is that throughout history, man has put more faith in gold and silver than they have paper money. All governments at all times abuse the paper system. Today is no different…if you do your homework and not listen to the one’s who don’t.
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About Doug EberhardtDoug Eberhardt is a 28 year financial services veteran and precious metals broker selling gold and silver at 1% over wholesale cost. Doug has written a book to help investors understand how gold and silver fit into a diversified portfolio, how to buy gold and silver, and what metals to buy. The book; “Buy Gold and Silver Safely” is available by clicking here Contact phone number for Buy Gold and Silver Safely is 888-604-6534
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