April 17, 2013

WHAT'S LOGIC GOT TO DO WITH IT?:

Why Gold Prices Have Melted Down ... and Will Stay There (SUZANNE MCGEE, 4/17/13, The Fiscal Times)

There are as many hypotheses about the reasons for this massive decline as there are attempts at capturing the frenzied atmosphere at gold-trading desks worldwide Monday. At the core, however, is the simple fact that there isn't enough fear among investors worldwide. Anxiety, yes. Uncertainty, absolutely. But blind panic? Nope. And it's panic that pushes investors into gold as a "safe haven" and a store of value. It's what people buy when they think they'll need portable wealth, or when they believe a currency's value can't be sustained, or when they think that other assets are about to lose all their value. (Remember the autumn of 2008?)

The rest of the time, unless you're a gold bug, the metal isn't a logical investment. Most investments provide some kind of potential gain, whether in the form of yield or capital appreciation. Gold, on the other hand, actually costs the investor money to own, at least in its traditional forms. If you own futures contracts, you need to keep rolling them over, incurring trading costs; if you own the physical metal, there are small issues like storage costs. (And gold ETFs don't offer a perfect or sometimes even an easily managed proxy for gold itself.)
Posted by at April 17, 2013 5:19 AM
  
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