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The mythical lore of gold dates to the dawn of man. Whether for jewels, religion or currency, gold's place in history is quite secure.
In the modern day, gold has become more about safe havens for fear mongers ready to declare the end of the world.
These folks will have you believe that the U.S. dollar will be worthless due to inflationary pressures arising out of a printing-press monetary policy. And that the collapse of U.S.-style capitalism necessitates a return to the one thing that we can count on to hold value no matter the circumstances.
Hogwash! Why not just make granite or bricks the de facto currency of choice. Ridiculous, right? But seriously, tell me the difference.
Of course, gold means so much more to the lunatics that believe the precious metal will solve all of their problems. What a joke. The only real utility for gold is aesthetic. The stuff looks nice in the form of baubles and chains. Beyond that, there is little true value.
During the last few years, the awakening in gold has been truly stunning. The speculators sold a bill of goods that resulted in an unprecedented rise in price. In just a few short years, the shiny metal pushed toward $1,000 per ounce. Amazing what a little fear fueled by large flows of capital can do to any security.
What transpired with gold was truly awe-inspiring. That is, until people caught on that inflation was nothing more than a mirage. When the global economy turned south, so too did the gold play. As it turned out, the death of the dollar may have been premature.
With the collapse in gold prices, gold mining stocks fell, too. For example, Barrick Gold Corp. (NYSE: ABX) was a $50 stock in early July. Today you can buy shares for about $30.
Has ABX fallen far enough? With the stock trading for 15 times trailing earnings and 18 times forward earnings, there may be more downside here. Ultimately, it depends on the price of gold. Given that, in the short term, deflation will be the story, it seems like gold prices will fall further. That does not bode well for Barrick.
Yesterday, gold prices fell by $34 to $820 per ounce. After a short-lived rally that was based more on fear, gold retreated once again. In my opinion there is more downside risk at these levels.
Louis Navellier's PortfolioGrader Pro rates ABX a D or Sell.
Jamie Dlugosch is a contributor to InvestorPlace.com.
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Reader Comments (Page 1 of 1)
1-13-2009 @ 7:16PM
bill said...
Hello from NC. Do you have any facts to back up your opinions on gold? Charts? Performance over 3, 5, 10 Years? there are lower prices on some assets and materials over the last few months but only for the short term. Do you have any facts that we are heading to deflation from the inflation we experienced in 2008? The deflation symtoms are appearing because money velocity has slowed, Quantity of money (inflation) is growing exponentially. how could we have deflation in the next year or two?
Thank You,
Bill Arrington, NC
1-13-2009 @ 2:27PM
Iridium said...
True, gold is a worthless commodity. Only 5% of gold is actually used for industrial applications and coatings. Beyond that it can look pretty when thigns are made out of it.
The true value of gold was when it was used as a currency. Once the gold standard evaporated the true value of gold disappeared and it became a vehicle for fear mongers and stock manipulators (there is no such thing as a stock trader today) to strike it rich by driving the price up and down for profit.
If gold held any real value you could walk into a store with an ounce of gold and buy $850 worth of stuff. The problem is that there is not a single store in the modern economy that will accpet gold as payment other than pawn shops. Going there you will never get close to the actual value of your gold product.
If we are ever going to right the economy we must ban all stock manipulators from influencing the market. The only way to do this is to close Wall Street. It is the only solution. The stock market only exists to manipulate the price of pieces of paper to benefit a very wealthy few. It is a giant con and needs to be stopped. The free market must return.
1-13-2009 @ 3:12PM
Hank said...
Gold and silver have been around as a currancy in mankind since before recorded time. Only recently has paper and electronic transmisions been used as the primary form of currancy. It is pre-mature to say that paper will be the new end all over precious metals. Certainly there are not enough precious metals to handle the magnitude of today's world economy. Granted gold is not used much as an industrial metal. It is simply too rare. Marilyn Monroe said diamonds are a girls best friend. I doubt if she would have turned down gold.
Paper money says "In God we trust". At least it still does but who knows for how long. Still, that is truly where your trust should be as it is paper. No matter how you wrap a dollar bill, it will not look very good or last very long as a ring.
1-13-2009 @ 3:20PM
Monty said...
I agree that deflation will be the story. For now! Yes, oil could go as low as $30 a barrel. Hell, the world could end tomorrow. But the one thing for sure is that if we are still here for awhile, gold, silver and oil will fly up when INFLATION returns. And it will return. I'm betting sooner rather than later.
1-13-2009 @ 4:35PM
Manshu said...
Two things - Deflation can be easily killed by printing as much money as possible. (A certain Mr. Bernanke can tell you all about it)
Gold as a precious metal has been around for ages, paper money has not been. Gold was used for money because it was easily divisible into units in addition to being rare.
All metals that were used as currency had these two features. That is why diamond could never cut it.