One of the ironies of April Fools Day is that I’m skeptical of the news I read on a normal day anyway; April 1 just makes it harder to tell which one is the joke. So, at the risk of seeming like a stick in the mud, I’ll spare you a headline like “Scientists Develop Gold Bar That Floats” and focus on something that matters.
For the second week in a row I’m conveying the actual news that gold ended the week roughly where it started. In a nod to my gag headline, it does seem like gold is treading water lately.
Gold prices staying roughly even the last two weeks is a headline all by itself. With improving results in Q4 of 2011, and blowout results in Q1 of this year in equity markets, gold should be on a shallow but steady downward track. Yet here we are, fairly comfortable in the mid-$1,600 an ounce neighborhood.
There are several reasons gold prices are showing resilience in the face of economic headwinds, but they all stem from the fact that precious metals are one of the few investments you can actually hold in physical form.
One of the other investments you can hold in physical form is real estate, but you won’t hear many people bragging about that market these days. Besides, unless you’re paying cash, you’re not holding real estate as much as renting it.
The quality of physical possession is also what separates precious metals from stocks and bonds. Most of you have a 401(k) or some type of retirement account, as do I. If it seems strange that markets are back to near pre-crash levels while your 401(k) is still down a couple points, it’s partly because financial institutions and executives get paid even when your investments perform poorly. There are a quite a number of people in line with their hand out to take some of your investment dollars, even when they don’t do their job. Nice, huh? These are the same people calling Medicare an “entitlement program”, like it’s some kind of charity, but I digress.
That bum deal stands in sharp contrast to holding precious metals. Let’s say you had 10 oz of silver in your safe that you bought at $33 dollars an ounce. If the price of silver then drops to $32 dollars an ounce, you still have 10 oz of silver in your safe. The amount of silver in your safe never goes down unless you take some out. There are also fewer people with their hand out to skim from your precious metals trades. You pay a premium over the spot price to buy it and a premium under to sell it, like a commission, and that’s it.
When you “own” equities, what do you really own? In the old days you actually owned a piece of the company and had a certificate to prove it. Now it’s just a bunch of numbers in an account that can be wiped away like they’re nothing because they are nothing.
If equities were more like gold and silver, I think they would be a better deal. Suppose companies had to issue actual certificates for stocks that were numbered as part of a total number of shares. Number 10,100 out 12,450,000 shares and every time a company wanted to issue more shares they would have to reprint all of them and send you new certificates that reflected the new total in the number of shares. Then you and I could trade company shares without a middleman.
I could buy your motorcycle with a few ounces of gold, a pound of silver, and a few shares of GE. If there was a simple way to verify their authenticity, you could sell your shares of Exxon on Craigslist or eBay and cut out Wall Street and your bank completely. That’s precisely the reason it’s never going to happen.
While I’m waiting for that development I’m going to build a raft out of those new floating gold bars and sail off to a new life on a Caribbean island. Happy April Fool’s Day everyone; as usual the joke’s on us.
Today, at 11:20 AM PT: Get the Market Movements in Advance; Williams Edge Webinar for July 23rd, 2014 | John Ransom