Money Magazine Joins The 2011 Gold Bubble Crowd – Deja Vu

It was only one year ago that Money Magazine was claiming “it’s only in fairy tales that one can spin straw into gold” when they came out with their article criticizing gold as an investment called “Coming Down With Gold Fever.” The conclusion of this article stated;

So you’d do well to heed the warning of economist Nouriel Roubini, who was ahead of the pack in predicting the credit crisis. People who argue that there’s economic justification for gold prices continuing their rise, he wrote recently, “are just talking nonsense.”

Deja Vu; Money Magazine as Gold Critics January 2010

It was also about a year ago today that I critiqued the conclusions of that article in Money Magazine and a CFA Criticize Gold With Flawed Analysis and it was two months before that in November of 2009 that I critiqued Nouriel Roubini’s negative comments on gold in Gold and the Carry Trade: Rogers vs. Roubini, Who’s Right?.

Gold finished 2010 up over 30% in case you didn’t know…

Now Money Magazine is at it again attacking gold calling it a “bubble” just as CNBC’s Bob Pisani did last week. Money Magazine’s latest musings come from contributing writer Janice Revell in Gold is a bubble – resist its charms.

Janice Revell of course was telling folks not to panic and hold onto your stocks in March of 2008. She couldn’t see the writing on the wall then as to what problems the economy was having and she still can’t today.

Why Does Money Magazine Continually Put Down Gold As An Investment?

To understand why Money Magazine continually looks down upon gold as in investment, look no further than the advertisers who pay the companies bills.

I just went out and paid the $4.99 for a copy of this month’s Money Magazine with the cover page stating; “Investor’s Guide 2011.” I wanted to see for myself if my speculation about “who pays Money Magazine’s bills” was true by looking at which companies were advertising in the magazine.

Below are the ads I found from beginning to end. The one’s in bold print are from or related to mutual fund companies;

Fidelity Investments, VW, Vanguard, Edward Jones (sells mutual funds), Bose, Shell, Charles Schwab, Thrivent, Geico, Ally (bank), Toyota, Microsoft Office, Market Smith (stock and fund evaluator), Farmers, Fidelity Investments,  Target, Edward Jones, Edward Jones, MetLife, T. Rowe Price, Ameritrade, Disney Cruise, Lowe’s, Hyundai, Time, American Red Cross, Discover, American Century Investments,  Chevrolet, Goldman Sachs, Acord, Mutual of America, Chase, AHRQ, Intuit, Rosetta Stone, Scottrade, Toyota.

As you can see from this analysis, there is an emphasis on mutual fund companies and naturally, these are the type of investments touted in the Investor’s Guide 2011 by the so called experts. Of course you won’t find any of these experts who saw what was coming in 2008.

On to the 2011 Money Magazine article…

Janice Revell tries to relate the “bubble” in gold to the fact that Saturday Night Live did a sketch recently whereby one of the characters portraying China’s President, Hu Jintao, declares; “Glenn Beck was right – my government should have bought gold. Unfortunately, all our assets were tied up in U.S. Treasury bills.”

Ironically, 2010 was a good year for U.S. treasuries as well as gold. No mention of that. But the article goes on to say be “wary” of gold and gives 3 reasons to be cautious. My comments follow each.

1. Bad Economic News May Not Earn You Much, and Good News Could Crush You

While the stock market may be marching towards 12,000, this does not mean the economy is doing well. Perhaps Revell or the other Money Magazine editors could respond to the following data and point out where any of it is “Good News” that could crush those holding gold.

• Double dip in housing is almost here
• Commercial real estate loan delinquencies are rising with more problems ahead
• Government spending is still what’s propping up GDP
• Banks have more sub-investment grade derivatives than at the height of the financial crisis
• Manufacturing recovery dies in terms of unemployment
• The American Recovery and Reinvestment Act (more stimulus) is only a temporary solution
• U.S. States continue to face large budget gaps
• Despite seasonal job growth, future employment looks dim
• Pension plans are underfunded
• Medicare is gaining 7,000 new 65 year old baby boomers a day

2. Sure, the Dollar Has Its Problems-but Just Look at the Other Guys

Their advice in this section is to; “skip gold and simply own mutual funds overseas” if you are worried about the fall of the U.S. dollar. This begs the question, how did the overseas markets perform during the 2008 to 2009 crisis?

• U.S. A. Dow Jones (DJIA) Down 46.8% from its high
• Japan (NIKKEI) Down 80.6%
• Germany (DAX) Down 47.7%
• Great Britain (FTSE) Down 41.7%
• China (SSE) Down 62.5%
• Every Country’s Stock Index is down more than 40% with most down
  more than 50% from their all-time highs.

When the stock market crashed in 1929, it wasn’t until 3 years later that the
depression was upon us. Meanwhile, physical gold and silver finished the year up in 2008 and 2009. Most advisors had egg on their face during the financial crisis, including those who recommended investments in overseas mutual funds.

3. The Gold Boom Has the Earmarks of a Speculators’ Rally

In this section they claim gold is “speculation” and “the greater fool” is needed at some point to take your gold investment from you. This can also be said of German Marks, Argentine Pesos, and most recently during their 75% decline in value in one year, the Icelandic Krona. Who says this won’t be true of Federal Reserve Notes if the Federal Reserve loses control?

How will the issues in number 1 above be resolved when congress can’t resist raising the debt limit and without the Fed having to print more money out of thin air? The answer hasn’t changed since I wrote this article 3 years ago; Which Would You Prefer, Higher Taxes or Higher Inflation? Expect both.

Are Believers in Gold Doomsdayer’s or Realists?

The last 10 years of higher gold and silver prices shows they are realists. But you’ll never hear about it from the media whose bread is buttered by promoting those advertisers who make their commissions from selling mutual funds or unscrupulous gold dealers who sell gold at high premiums (why doesn’t Money Magazine ever write an article about that?).

Sometimes you are left to figure things out for yourself and I hope this site provides you with enough data and research to do so. Could gold fall in price? Sure it could…but each time it seems to go down, it’s being scooped up by China, India and investors who don’t follow Money Magazine’s advice.