Gold, What Is Wrong With It?

In the middle of March (18 to be exact) I started this blog entry. I am posting it now because somebody else finally said what I was thinking privately for quite a while.

Investor Jim Rogers said he prefers oil over gold as he believes the International Monetary Fund will sell its reserves following the recent rally in the precious metal.

“The IMF is trying to sell its gold,” Rogers, chairman of Singapore-based Rogers Holdings, said in an interview with Bloomberg Television. “The IMF is one of the largest holders of gold so you’ve got this huge supply overhang.”

Because of frugal I got to thinking why Gold just was not jumping by leaps and bounds. I am not convinced of gold as an investment vehicle, but I still wonder why gold is not 2,000 USD. What gives?

After all there are way too many people who say Gold is the safe investment.

One of my colleagues have repeatedly asked me this question. I am quite clearly on the answer, “NO”.

Yet it is not going up, why not?

The government is printing money, yes? And because of that gold should go up. What if something else is going on?

What if the government is not printing as much money as we think they are?

Let’s play this mind game, shall we…

The governments have gold as reserves, and the governments need money. So the governments sell gold on the free market. And they sell so much that they are damping the demand. Thus the market is being flooded with money from those buying the gold.

The interesting psychological effect is that those who would buy gold would not have spent the money anyways. They are buying gold as a “safe” haven. This bought gold is money that the governments can use to pay for the stimulus.

Though the governments have less gold, and one would think that they are mortgaging the house. But I am thinking, what if once the market calms down and gold drops? Then the governments could buy back the gold and will have made a profit.

Though if the price of gold goes up the government will be out of money, yes?

Well not quite. If gold truly goes up then the governments will have to print money to pay back the folks who bought the gold and want to cash out. And at that point the problem with inflation and printing money will come true.

So that leads to the question should you or should you not buy gold? I think it is a crapshot, but I am tending to no because I believe (hope) that the economy will get better and thus the price of gold will drop.

BTW I don’t think oil is the place to be. I do think the place to be is wood, and one of Jim Roger’s picks farmland.