One of my central theses (as opposed to one of GM's ventral faeces, which is another matter entirely) is that in an inflationary environment, gold is really just not that great a hedge. Currently, I own no gold (paper or solid), and I make no apology for that: it's neither (a) necessary, nor (b) profitable. Shoot me.
I don't really enjoy philosophical debates about gold emerging as the new real money, or it being liberated from its chains to enrich a few sharp billionaires and web-obsessed PM market followers. It's not that I'm utterly humourless - oh no - I enjoy spluttering into my tea at the latest silver fiction splurged out onto the silverogosphere as much as anyone, and I like to think of myself now as some sort of connoisseur. It's just that when it comes to gold, the level of debate is just so... how can I put this?... so, un-rock and roll. It's a bit of wealth protection here, a bit of cheat the gubbernment there; a bit of inflation hedge here, a bit of doomsday over there. I just can't grind with that kind of solipsistic navel gazing: Louis has just given me my pocket money, and I want to make it worth more - now!
So I have three aims. The first is to protect against (what is by any objective measure, moderate) inflation, the second is to minimise risk, and the third is to increase my net worth if at all possible. And that's why I trade, even though I don't really have the time because of my day job as Slow Lorris Larry's dust-off-book blower, or the inclination as a wishy-washy European liberal.
For each of those three criteria, I find that gold is currently coming up rather short.
Rio Tinto - especially since gold's all-time high in September 2011 when it has just been stuck in an adolescently petulant trading range that belies all predictions of both shorts and longs alike. Those who bought in September 2011 have demonstrably not protected themselves against inflation. However, those who have traded Vedanta in both its highly predictable directions, absolutely have. Now, I'm not saying that everyone should rush out and get a trading account: that could be disastrous. What I'm saying is that even as a good old-fashioned inflation investment, it is not clear why one would privilege gold over, say, blue-chip resource stocks.
Tullow Oil, which has its own trading range (again, in both directions) that is entirely predictable on the basis of RSI and stochastic indicators. And if a long trade goes wrong, well there's always the dividends to keep me warm until the share price recovers.
Increasing net worth? Well this links to the inflation point. But just to expand on it: by creaming the 10% in both directions of the moves in, say, Kazakhmys, I have been able to consistently turn a profit of a magnitude - by buying low and selling high - that I have not been able to achieve for gold.
By now, the readers of this post will have split into two groups. The first will be those who trade for a buck, and who know how to short (NB: retail traders don't [generally] short), and who know what I'm talking about.
How to be a shill: get the sheep to go long!
Those who really violently disagree with this view will probably do their usual, and say I'm a Bankster Shill trying to put people off gold. You know what? If I were a Bankster Shill, trying to make money out of the sheep, then the first thing I would do is to encourage everyone I could convince to go out and buy as much gold as possible - preferably via options, but then by any method. It's way easier than trying to persuade retail (rather than my rich bankster friends) to go short - because retail doesn't short. Given the already febrile atmosphere on the silverogosphere and in the darker recesses of the Republican party, this would be an exceptionally easy message to deliver. And, assuming I had an audience slightly larger than the two regular readers that Screwtape normally gets [Warren, and Warren's mum, if you really want to know - Ed.], I would then short the living daylights out of those 'sheep', safe in the knowledge that gold is really, really, sodding expensive at the moment.
It doesn't work the other way round: Anyone cautious about gold (at not far shy from its all-time highs, when there are thousands of, to pick an example at random, under-valued, seriously over-shorted, dividend-paying stocks out there) will not, cannot, provoke a mass propaganda move against gold by retail - even if I were as almighty and great as the Turd or the [Eric] King themselves - in order for one to profit by flipping long after the sell-off.
Yes, pace Turd, the longs are winning (for now). And that's great. Whoopee-do. The opposition to gold buying, despite what you might read on the silverogosphere, is paper thin. Nobody cares. Not the 'Main/Lame Stream Media', not the politicians, not the hedge funds, and certainly not JPM-C et al. Buy as many coins or bars as you like, and still, nobody will care.
But, as resource stocks are on their knees, they are being hoovered up by those anticipating the end of the European recession (just as it enters it for a second time), a probable increase in inflation (so they need a real inflation hedge, and not just crapped-out gold), a massive new commodities boom in Africa (the new emerging market - more on this in another post), and a desire for a real, paying asset. This is smart money.
I've been hoovering them up too: LON.AAL at 16.95; LON:RIO at 29.95, LON:KAZ at 6.58; LON:TLW at 13.56; etc., etc., etc. My current stock portfolio yields an average of 5% a year in dividends - now that's protection. I'm moving away from trading, and into investment - an investment that will pay in both dividends and share price growth.
Given the fact that I anticipate my resource stocks will bounce back in share price in a highly rewarding way over the next five years, I feel really, really, flipping protected, without a shred of irony. It's all about - and I repeat myself here - buy low, sell high. These stocks are very, very low. Gold is very, very high. So why would I miss out on this resource opportunity, and plum for a long-term investment that is already well past its sell-buy date?
Gold just makes me scared.
Have at it. We aim to inspire debate.