Gold = DIY Store of Value?

Reading this Bloomberg report earlier today got me thinking about two things.

One was how Jim Grant has been speaking and writing for a long time about the -- shall we say -- dubious long term prospects for central banking.

The other was the Financial Sense gold roundtable I linked to this past weekend, with one of the participants being Jean-Marie Eveillard. I didn't catch if Eveillard said how much of his flagship fund is in gold. But if I heard correctly, he his gold position was 60% bullion and 40% stocks.

He said he likes gold bullion over the mining stocks. And he sounded like Grant when mentioning the central banks, and referred to gold as real money.

If you're a regular reader of Controlled Greed, you know I don't have a position in gold -- the bullion or the miners. But this stuff is worth keeping up on, especially if your wallet and financial accounts hold US Dollars.

This bit from the linked Bloomberg story stands out for me:

"You can't find a currency that you trust as a store of value, so you create a new one,'' said Robert Fullem, vice president of U.S. corporate foreign-exchange sales at Bank of Tokyo-Mitsubishi in New York. "Safety ends up being a piece of metal. You can stick it under your bed, and sometimes that's your best bet.''

Grant or Eveillard couldn't have said it better. Then again, they've probably said similar things previously.

Comments

[Byrne]

Back when I was a naive value investor, I thought goldbugs were simply delusional. Now that I've read a lot of what they have to say, I can report that they are elaborately, complexly, intertwinedly delusional. The goldbug case is that you need one bubble that doesn't pop (http://unqualified-reservations.blogspot.com/2008/02/return-to-castle-goldenstein-gold.html), and it might as well be gold.

But markets are liquid, gold is about 2000% higher than it should be as an industrial metal, and it doesn't pay dividends -- I couldn't make the case that gold is a better store of value than an index fund, or (better yet!) a portfolio of asset-rich stocks trading at a good price relative to a growing cash flow.

However, it's very stimulating for a Graham-and-Dodder like me to hear otherwise normal people defend the proposition that something overpriced by all measures of value may be underpriced because more people will decide to buy it -- and that they'll buy it if and only if it's too expensive to be anything but a currency!

[me]

Well, no one can tell you gold is a good investment. You are free to buy or not buy what you like. You probably have a portfolio stuffed with Intel and Microsoft.

[John]

Byrne: My view is that gold is to be traded, and was a buy back when it was under $300 earlier this decade. I bought the bullion then -- via Central Fund of Canada -- but eventually sold. Too early as it turned out, but, hey, that's a chronic value investor mistake.

On a sidenote, I can see using gold bullion as a form of insurance. Where you'd keep a fixed percentage of your net worth in the mettle, buying or selling annually to maintain that amount.

me: I take it your comment was directed at Byrne.

[RJ]

John.... it sounds like you think the "metal" has some "mettle." :0)

[John]

Ah, well, it's been that kind of day. Thanks for the catch, RJ. :-)