Marketwatch Explains “Why Gold is a Bad Investment”

Posted by Marketwatch - Richard Russell Comment

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GLD

“Let’s take a look at gold (I’m using GLD as a proxy for gold). We see the big break in gold that occurred on Friday, but so far GLD has respected that long rising trendline. The trendline will hold as long as GLD remains above 132.

GLD

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Why gold is a bad investment

by Market Watch

Precious metal lures susceptible buyers into a Midas crush. Gold does not always glitter, but you wouldn’t know that from surging worldwide interest that has turned the yellow metal red-hot.

Gold has become highly prized bling, as anxious and astute buyers alike, from hedge-fund players to central bankers, flock to the “currency of fear.” Gold at around $1,400 an ounce is almost double what it commanded two years ago, and gold’s price is up almost 25% so far this year alone.

It’s been a great ride. Except gold is a bad investment.

Gold’s feverish run has made a lot of people a lot of money, and though the rally has taken a breather in the last few days, there’s no shortage of flag-waving supporters who claim gold is on a march to $1,600, $1,800, $2,000 and beyond. After all, gold is still well below its 1980 peak, when it was worth around $2,300 an ounce in today’s dollars.

Certainly there are reasons to own gold in a diversified portfolio. Yet gold isn’t like a stock or a bond. It offers no income, no dividend, no earnings. It is considered a store of value, an alternative currency that’s safe beyond reproach, but it is not cash in the bank, or even the mattress. Gold has no untapped intrinsic value; it is worth only what people are willing to pay for it. And lately, many people have been only too willing.

“Gold is going up because people are buying it, and people are buying it because it’s going up,” said Leonard Kaplan, president of Prospector Asset Management in Evanston, Ill., and a longtime gold trader.

Golden fleece

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