"No warning can save people determined to grow suddently rich" - Lord Overstone

  • 17 mins Why Smart Money Is Selling Off Right Before The Bell
  • 2 hours Tech Giants Rally Ahead Of Earnings Reports
  • 18 hours Global Debt Hits 225% Of GDP
  • 19 hours The World’s First Trillionaire Will Be A Space Miner
  • 20 hours How Student Debt Could Cause The Next Real Estate Crisis
  • 21 hours This $550 Billion Industry Is Betting On Bitcoin
  • 22 hours One Commodity Set To Soar On Russian Sanctions
  • 1 day China’s New Car-Market Rules
  • 1 day Oligarch Risk: The New Red Flag For Investors
  • 2 days Five Things To Consider Before Investing In An IPO
  • 2 days Investors Bullish As Earnings Season Kicks Off
  • 2 days Nearly One-Third Of U.S. Lottery Winners Declare Bankruptcy
  • 2 days Is Facebook Still A Buy?
  • 2 days Will Blockchain Stocks Ever Bounce Back?
  • 2 days Geopolitical Tensions Fail To Boost Gold Prices
  • 2 days China's Economy Soars Despite Trade War Fears
  • 2 days The Biggest Threat To The Economy
  • 3 days What Does A Billionaire's Bucket List Look Like?
  • 3 days Is The Global Economy Growing Or Slowing?
  • 3 days A Sanctions War Could Cripple U.S. Corporations
3 Stocks to Watch This Earnings Season

3 Stocks to Watch This Earnings Season

Stocks began Friday with a…

One Commodity Set To Soar On Russian Sanctions

One Commodity Set To Soar On Russian Sanctions

The recent sanctions on Russia's…

Adrian Ash

Adrian Ash

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK's leading financial advisory for private investors, Adrian Ash is…

More Info

The Contrarian's Quandary

Being right and sitting tight in gold might not be different things...

The best way to hope you'll make money investing?

Berkshire Hathaway legend Warren Buffett reckons it's "being right" - which is about as down-home as the "Sage of Omaha" could get. "Sitting tight" was the key for legendary "boy plunger" Jessie Livermore, whose personal depression drove him to suicide in 1940, apparently leaving $5 million behind him. Contemporary hedge-fund legend Hugh Hendry says your best shot comes from "contentious" positions - taking on trades that no one else dare back, because they can barely conceive of a world in which they might ever pay off.

And right now, what could be more contentious than gold?

Gold: US Purchasing Power

"Without any contentious posturing in your portfolio, I suspect you're not going to make money," Hendry told an interviewer this summer."

"You're not guaranteed to make money by being contentious or controversial," he stressed. "But if you can get your mind around the most contentious viewpoints, I think you stand a better chance of making money."

Now, we know what Buffett thinks of gold, and we know that Hendry didn't buy the bull back in 2008, when gold made headlines amid Phase II of the global financial crisis to date.

"[People] fear financial anarchy. Gold coins are sold out. Everyone is in."

Contrarian investors, therefore, should have stayed out - or even gone short - at $800 per ounce. Because "everyone [was] in." Except for all those people who've been buying gold since, nudging it back up towards that all-time high - in real terms - hit at the start of 1980.

Hence the contrarian's quandary today. Because if you read only the financial pages, you might imagine everyone is "all in" as 2011 nears its end. Looking at our chart above, you might also think that gold returning to record levels - adjusted for inflation - means it is plainly nearing its top, too. Subject to the same "mania" that led investors over a cliff in the early Eighties, the bull market has been and gone. You missed it.

But if true, then so did pretty much every other private investor and saver in North America and Europe as well. Only a tiny proportion of Western households hold any real chunk of their savings in gold today. The continued surge in consumer demand is coming instead from Asia, a market driven by cultural affinity - and a recently released appetite for gold ownership - that finance professionals and advisors can barely imagine in the West.

Yes, central banks in the rich emerging economies are quietly buying gold at a record pace as well. But that only makes gold yet more contentious still - sitting right on the edge between them and the developed-world's sellers of a decade ago. The really contentious view might instead see gold instead causing a real shock, and going still higher again in just the way it didn't three decades ago.

As for Jessie Livermore, gold was money when he made the bulk of his trades over a lifetime ago - the end, not the means, of making a profit.

Can you imagine that?

 

Back to homepage

Leave a comment

Leave a comment