Owning Gold is Crazy, Says This Citi Analyst

Tuesday, December 02, 2014 Owning Gold is Crazy, Says This Citi Analyst   by Jamie Dlugosch   I was wondering when intelligent minds would begin making a louder case against owning gold.   The recent vote in Switzerland -- to force its central bank to maintain a percentage of reserves in gold that could never be sold -- was too rich to ignore.   Lambasting the vote as ludicrous, Citigroup analyst Willem Buiter thinks you'd be crazy to hold gold.   There's a reason the gold bugs were hoping, perhaps praying for Switzerland to approve the measure that would effectively destroy whatever value there could ever be from the shiny metal.     FURTHER READING Is this happening in your neighborhood?   There's a special Federal program that allows you to completely pay off your real estate taxes through exclusive rebates. And they are available to any American. In fact, you can collect a Real Estate Tax Rebate this month! And every 30 DAYS after that!   Click here to find out how to enroll.     And that value is not much, if you ask me.   Logically, if you force someone to own something, whatever it may be, never allowing that something to ever be sold simply makes no sense.   It makes that holding essentially worthless, but that's a minor detail for the gold crazies.   According to Buiter, gold has simply become a fiat currency and in that role it is probably the least attractive of the fiat currencies out there.   Why is that?   Mainly, gold has minimal if any producer value and it is extremely expensive to extract.   The closest comparison would be the online virtual currency Bitcoin.   Bitcoin, like gold, is a fiat currency that is expensive to extract in that miners of Bitcoin must invest significant computing resources and power to be ultimately rewarded with Bitcoin production.   There is a reason governments gravitated to paper-based fiat currency.   Simply put, it is cheaper to manufacture a dollar bill than it is to produce an ounce of gold.   It's also easier to use and can be distributed easily in the market.   Gold, even in coin versus bars, is not as attractive. Worse, it is expensive to store. Paper currency is far superior in that regard.   With the world economies dealing with a commodity deflationary spiral, what reason is there to hold gold?   There are none really, and yet investors are fanatical about the shiny metal.   Buiter believes that gold has been in a bubble for 6,000 years.   That's what makes it difficult for anyone to be short gold.   Owning gold may not make any sense from an intelligent investment perspective, but that matters little to the rabid fans.   They will buy and buy and buy and buy no matter what logic says.   As a result of that buying, gold could theoretically be in a bubble for another 6,000 years, in the mind of Buiter.   While a rational mind can fairly value gold for what it is, the market not so much.   Thankfully, rational minds prevailed in Switzerland, voting down the proposal to force gold holdings.   If the value of gold is dependent on irrational exuberance or bubble buying, does it really make sense to own it in your portfolio?   Those who played the gold rally over the last decade should simply count their blessings and look to liquidate their position before someone comes up with the crazy idea, like Switzerland, that forces owners to hold.   Of course that won't happen, but you get my point.   Gold is looney tunes ... period.   Jamie Dlugosch Editor Investor Research Institute   To Read More From Investor Research Institute Click Here
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