Posts Tagged ‘financial system’

Is long gold mainstream?

Sunday, April 5th, 2009

Currently, there is a lot of interest in gold from the mainstream investment circles. Someone told us that the “ratio of bulls to bears for gold is running in the low 80s at the moment.” Since we are long-time advocates of gold, does it mean we have become mainstream investors and are no longer contrarian?

Well, the short answer is, we are still contrarian. The long answer requires more explanation.

First, when the word “gold” is mentioned, what is the gold that is meant? Is it gold certificates, gold ETF, gold CFD, gold futures, gold stocks, options on gold futures or physical gold? If the ?gold? is not physical gold, then these ?gold? are just some variations of financial assets. The common denominator in financial assets is that they are always a liability on the other side. In other words, a lot of the ‘gold’ are merely financial assets disguised as gold.

So, if you want to invest in gold, you have to understand the distinction between ‘gold’ (financial assets disguised as gold) and gold (real physical gold). The whole point of investing in gold is to transfer a portion of your wealth to a form that is outside the financial system. If you invest in ‘gold,’ then your wealth is still trapped within the confines of the financial system.

So, when you hear that investing in gold is now in the mainstream, it is more accurate to understand that this merely means that investing in financial assets disguised as gold is now in the mainstream.