A Developing Feud

As reported in Commodity Online, gold bull Jim Rogers has taken umbrage at Nouriel Roubini's bearish assessment of the metal:

The differences of opinion on gold forecast by Jim Rogers and Nouriel Roubini are turning sharp and deep. Global commodities investor Rogers has once again lambasted Roubini for predicting that gold price is on a bubble that will burst soon.

“I am flabbergasted at Roubini’s comment about bubbles because there is not a single market in the world making all-time highs except gold, US Government Bonds, Cocoa, and the Sri Lankan stock market. That’s hardly reason to call for a bubble. So, I am most perplexed about this alleged bubble which is out there,” Rogers, who is now settled in Singapore and an aggressive investor in Chinese agri commodities market, told Wall Street Cheat Sheet....

If only gold were more like stocks! Other investment classes lend themselves well to emotion, but gold is unique when it comes to emotional attachment or aversion. Goldbugs insist that gold is money, even though it's hardly used for barter, and gold skeptics insist that gold has no intrinsic value, in defiance of every price chart for the metal. [In technical economics, it's axiomatic that no specific good has intrinsic value, as all values for specific goods are held to be subjective. That's not what the gold skeptics mean by "intrinsic," though.]

With stands so diametrically opposed, and with each position so at odds with the facts on the ground, it's no wonder why so many arguments flash up between the two sides. The only parallel in the stock market is with high-flying stocks that have sparse earnings records. Bashers of these stocks "hate money," "hate growth" and are "down on everything." Promoters of these stocks are "not living in the real world," "nut jobs" and "crooks."

One wrinkle: in the high-flying stock arena, the two sides often moralize at each other. In the gold arena, we see politicizing.


This blog isn't intended to be an investment-advice blog, in part because I'm not qualified to be an investment advisor. However, I can offer this para-investment advice based upon the above: one of the most difficult skills to master in gold investing is emotional control. It's a rare bird that can see gold as just another asset class, which moves to a somewhat unique drum. Gold produces no return, and is primarily used as either a luxury item or an investment tool; it lacks the ties to the regular economy that industrial commodities have. Even silver has those ties. Because of those two lacks, there are no everyday, non-controversial metrics that can be used to assess gold's value. The "valuation gap" tends to be filled by emotions.

Emotionality does tend to spill over into gold stocks, making for more volatility. Emotional control can pay off by selecting better entry and exit points, or accumulation points for steady buyers.

As far as gold-exploration stocks are concerned, there's an entirely different emotionality in play. Have you ever dreamed of being a merchant-adventurer? Gold exploration stocks hook in to that dream. Finding and building a mine is risky, particularly at the financing stage, which keeps gold-exploration stocks low. Except in the scarce instances when the property values are so compelling that the stock's pushed up near done-deal level, exploration stocks with viable properties are typically penny stocks. One of the earmarks of an all-out bubble is many exploration stocks selling at done-deal levels, with an associated faith that a good (validated) property is a "sure thing" because "the banks are killing each other to lend." Yep, one of the earmarks of a big bubble is seeing lenders as the holders of a money-cornucopia. Remember U.S. real estate in 2005?

That's when many people lose it, getting "stuck on cornucopia" when the bubble finally bursts. We can't reboot our brains.

From a trading (or even accumulating) standpoint, these emotionalities are costly and sometimes dangerous. Sadly, there seems to be no way to get around them except though being burned. Happily, though, it may not be necessary to be scorched by an all-out bubble-and-collapse to pick up the habit. The recent "mini-bubble" serves as an object lesson. ["Object lesion" for those with a sense of humor.]