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Rocky’s (latest) view on gold

August 23, 2011

Knowing that he’s been a gold bull for years, Rocky’s friends keep asking: “What you do think of gold, NOW?” (These people actually think that Rocky and certain other TV commentators can  predict the future.)

Rocky’s answer: “I have no idea, and have NEVER had any idea about what the price of gold will do tomorrow.”

But does he still own gold?

“Yes, and I also own some stocks. And I own some real estate. And I own some bonds. And I own a copy of last week’s People Magazine. And I have no idea what the price of these will do tomorrow either.  My experience has been that pundits who claim perfect knowledge of the future are generally either liars or idiots. (Whoopi Goldberg is the exception to this rule.)  What I’m doing is called diversification.”

But when will he sell gold?

“The PRICE of gold is irrelevant. As I’ve written on this blog, I will sell gold when the gold story (or more accurately, the market’s perception of the gold story) changes!  Gold’s ascent is a confluence of negative real interest rates; undisciplined central bank behavior; a growing loss of confidence in government policies and financial systems; loss of Swiss bank secrecy; an accumulation of economic wealth by individuals in parts of the world without stable property rights and rule of law. Can gold drop $100 tomorrow? Sure it can! Can gold drop $300 next week? Sure it can!  Can gold drop $1000 next year? Sure it can! But so long as these FUNDAMENTAL  factors remain in place, the underpinnings and demand for hard assets that are beyond the reach of governments will remain.”

“Almost all of my really smart friends are very bearish right now. They all think this move is idiotic. Many think this is a bubble. And eventually they will be right. But eventually could be a really really long time. And it could include a trip to unimaginably higher prices first.  Their skepticism is not predictive of anything.  And importantly, they are not betting that gold will decline either. All it tells you is that they aren’t long gold and missed this move.  I’ll admit that I get nervous when prices rise quickly.  And historically, buying after a sharp rally isn’t a good idea. But why should any of this market chatter affect my long-term porfolio construction/diversification?  After all, I’m not afraid to admit that I have absolutely no idea what prices will do tomorrow.”

[Disclosure: Rocky NEVER gives investment advice. He’s owned gold for a long time. And he owns some hedges that will protect him if gold drops sharply while he’s asleep. And some day, he will sell his gold. But whether it’s at $2,000/oz or $10,000/oz is out of his control. It’s in the control of  millions of other investors around the world, and how they react to the policies of their central banks and governments.]

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  1. August 23, 2011 at 7:42 am

    I think I love you.

    In a manly slap on the back sort of a way of course.

    Bloomberg, CNBC, BNN (Canada) should all be banned from asking every guest they have “so where is the DOW going next year”.

    Every guest has an answer and they all know that they are either “liars or idiots” for giving the answer.

    • August 24, 2011 at 11:46 am

      Solfest: If you love Rocky, you’ll love Lord John Browne (former CEO of BP) even more — and you don’t need to love him in a “manly slap on the back sort of a way.”

      Regarding oil prices, he allegedly said: “I can forecast confidently that it will vary. After that, I can gossip with you. But that’s all it is, because there are too many factors which go in to the dynamics of the pricing of oil.” Or to quote another pithy saying of which he was fond : ““Those who claim to foresee the future are lying, even if by chance they are later proved right.”

      For more on back-slapping Lord Browne: http://en.wikipedia.org/wiki/John_Browne,_Baron_Browne_of_Madingley#Resignation

  2. ed
    August 23, 2011 at 11:14 am

    Hi Rocky, Do you have suggestions as to the best resources (books, papers?) for seeking to understand the forward curve in the commodity markets?

  3. August 23, 2011 at 4:10 pm
  4. August 24, 2011 at 2:19 pm

    Rocky:

    Perhaps my exuberant proclamation of “love” was a bit much.

    Your post hit a chord as I have tried many answers to the inevitable question that immediately proceeds, so what do you do for a living?

    Answer: I trade crude oil.

    Question: So where is crude oil headed this year?

    At this point Solfest ponders do I tell the truth or do I tell them what they want to hear?

    If I tell them what they want to hear they leave happy. (This is Alberta they want to hear that crude oil is going up)

    If I tell them the truth, which is I have no idea, they either get angry because they think I’m holding out on them, or they think I’m an idiot.

    So I guess I actually just love your post.

    Although I really do like you, in a manly slap on the back kind of a way of course, not in a John Browne sort of a way.

    Not that there’s anything wrong with that.

    Of course.

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