Ignorance is bliss…for gold bulls

We need look no further than this CNBC article to gauge the average understanding of the two-bit financial market trader.  These guys wouldn’t know a valuable asset if it jumped out of their 20 computer screens and wedged a gold nugget up their…

Ok sorry, I get passionate about these things.  But seriously listen to some of these quotes, gems I tell you:

After all, unlike equities, which pay dividends and have a break-up value, or bonds, which have a principal and monthly coupon payments, gold is only worth as much as the next person is willing to pay for it.

Wrong.  Gold is worth its marginal value in the service to those holding it, including such service as protection of value, durability, divisibility, liquidity, recognisability, historical track record of safety, exchangability for currency, scarcity etc.

and

“Gold has no valuation, no metrics, no commercial use,” said veteran commodities trader Dan Dicker. “It’s the world’s most respected ponzi scheme.”

Ah, no, that would be US Treasury Bonds sir.

A wise analyst recently made a very profound point.  A bubble is not determined by the length of time an asset has been in a bull market (in gold’s case 10 years).  Instead, it is determined by who is buying it, who isn’t buying it, and who’s selling.

Who’s buying gold?  High net worth, highly diversified investors and eastern central banks.

Who’s not buying gold? Grandma, the guy I met at the Rotary Club last week, two-bit traders, and most pension funds.

Who’s selling? Large western banks and central banks.

Gold ain’t no bubble.