ETF Gold (GLD) Is A Kind Of Religion That You Either Believe In Or You Don’t

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May 27, 2009 12:03pm NYSE:GLD

gold-crossIT GETS dug out of the ground in Africa, or some place. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it

IT GETS dug out of the ground in Africa, or some place. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head. Warren Buffett.  The bedrock case for gold:

THE basic premise is not new, but then nothing’s changed much… Ludwig von Mises, the father of Austrian economics, who recognised early on that government attempts to massage the credit cycle always end in tears, memorably described the phenomenon as follows: “There is no means of avoiding the final collapse of a boom expansion brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”……. 


……But who’s going to buy when it comes time to sell?

SPDR Gold Trust (GLD), the gold ETF, is the sixth-largest holder of gold in the world — ahead of China. However, it does not determine its purchases and sales of physical gold. When investors buy GLD it has to buy gold, driving up the price, which raises a question: who will be buying gold from GLD when investors decide to sell?

Gold is one of those weird assets that doesn’t have an intrinsic value. You can’t run a discounted cash flow on it. It has no cash flows. It is an asset where perception and reality are deeply intertwined. A violent sell-off in GLD would drive the price of gold down dramatically. No longer perceived as a store of value, the gold game will quickly be over. From an article by Vitality Katsenelson at contrarianedge.com

Full Story:  http://www.businessday.co.za/articles/Content.aspx?id=71946


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