Gold May Not Be Just Another Commodity Anymore

by: Tim Iacono September 17, 2008 | about stocks: GLD    

Tim Iacono

About this author:
Become a Contributor Submit an Article
  • Font Size:
  • Print

We will see how things go from here, but today may mark the day that gold bullion transitions from being just another commodity into something very different.
IMAGEDespite what you may think after the previous post (it really is a catchy song), it is highly unlikely that what we are seeing today is the end of most of the world as we've known it, but, for Wall Street investment banks and the price of precious metals, change is certainly afoot.

As shown in the chart above, one of those changes (that may or may not persist after today but, at some point, most certainly will) is that people with money are becoming more and more distrustful about what the government has been doing lately and are starting to think of gold as more than just another commodity, which is really all it has been since the beginning of the bull market in commodities about 7 years ago.

Call it a "safe haven" bid or a "flight to safety", it doesn't matter.

Call it fear of a financial market implosion or wealth preservation ahead of what will continue to be massive government intervention in an effort to ameliorate the current (and worsening) condition - peoples' opinions about the metal are changing.

Gold may no longer be "just another commodity" anymore.

Related Articles

This article has 28 comments:

  •  
    Sep 17 02:52 PM
    Well, let's not go overboard because gold had one good day.

    A lot of gold and silver mining operations need prices above $1200 per ounce Au and $20 per ounce Ag to be able to make decent profits.
    Reply | Link to Comment
  •  
    Sep 17 02:58 PM
    If anything, it seems that Silver might be the better play, since the Gold to Silver ratio has gone parabolic - as evidenced in the 'Panic Investors: Gold or Silver' article here on Seeking Alpha.
    Reply | Link to Comment
  •  
    Sep 17 03:24 PM
    It's the perception of gold that is changing, not the metal itself.

    Gold has been a dependable store of wealth for thousands of years. It has been less than 100 years since the American populace stopped taking that fact for granted. Many will find it a painful lesson to re-learn.

    Thanks FDR, Nixon, and all the other politicians who did their best to hide that fact. We're really enjoying the fallout of the ever-expanding fiat currency that has been forced upon us all these years.
    Reply | Link to Comment
  •  
    Sep 17 03:24 PM
    Gold and silver are and always have been real money. Not just starting today. Yes, gold for silver arbitrage is one way to go. Also some nice energy plays out there.
    Reply | Link to Comment
  •  
    Sep 17 03:32 PM
    oh please let's go back to the gold standard so the same people who got us into this mess can have control since they hold all the damn gold...I'll take the silver thank you
    Reply | Link to Comment
  •  
    Sep 17 03:34 PM
    Gold is indeed just another commodity. The metal itself is just another metal, with no magical power. If you think otherwise you need to check to see if you have fallen into thinking of a certain a religious cult. Open up your mind. Flight to safety does not necessarily mean gold is the only choice. Gold is not even the best choice right now. The people bought gold at $800+ in 1980, did they find safety in gold.

    One needs to understand intrinsic values of commodities to be able to make the right decisions and avoid the mistakes people made in 1980:

    Principles of Wealth Preservation
    stockology.blogspot.co...

    Right now, I can cite many many things that are much better than gold and silver. So don't fall into a religious thinking that only gold is good.
    Reply | Link to Comment
  •  
    Sep 17 03:39 PM
    The fast money moving tens of billions of dollars into and out of GLD and other PM ETF's and futures contracts will determine the price from now on, just as they have for the last few years. Expect volatile pricing and be ready to actually sell at the peak of the panic if it gets too high again.

    Of course, the problem for goldbugs is that they usually can't bring themselves to sell. This inability to sell, plus a tendancy to want more gold as the price rises, puts them at a permanent disadvantage in terms of making money (yes fiat money, but human perception is what gives gold it's value too, as the markets show.).

    I'm concerned that years of high prices will unleash a flood of supply, as typically happens with historically boom-bust commodities. Tons of gold are mined every day and more mines are on the way.
    Reply | Link to Comment
  •  
    Sep 17 03:46 PM
    its been disconcerting to see all major asset classes decline (with respect to fiat currency) in unison.
    Reply | Link to Comment
  •  
    Sep 17 03:58 PM
    Look, I KNOW goldbugs are crazy, but right now everyone is crazy.

    In anything but the short term gold is a NIGHTMARE.

    But this sudden shortage of dollars and dollar credit has caused people to go insane with panic, so even though they still want dollars, people - especially in the third world - may want gold.

    Also, you gotta figure the longs in the futures markets are absolutely DYING. They need a ray of sunshine here and they still have a lot of firepower.

    Gold may have pushed itself out of the anti-bubble it was in.....into a new one of course, but maybe not for a while.

    I think the DZZ was just becoming too obvious a trade and gold was where the short commodity money was weakest. They've been doing nothing but raking it in at unprecedented rates for a couple months. A break is due.
    Reply | Link to Comment
  •  
    Sep 17 04:11 PM
    My religion isn't gold, Mark. I know you believe palladium will rise--well, I do, too. But I'll tell you, I've held PAL for a number of years and it hasn't gone anywhere. It may, but who knows. And gold and silver certainly ARE money. Just because people bought high and sold low or didn't sell doesn't say anything about gold per se. It says something about their poor timing. Now we might all have poor timing--or not--but that doesn't say gold and silver aren't money.
    Reply | Link to Comment
  •  
    Sep 17 04:29 PM
    Gold has always been and continues to be the teddybear for investors to clutch onto. When the boogieman comes to visit everyone runs to gold. Well, the boogieman is here so buying bullion, etf's, mining stocks and coins is a no-brainer. Gold may be at 1000 by next week and since the boogieman doesn't appear to be leaving soon 1200 or 1500 is very possible. Jump on board or hope your value stocks don't take 2 years to rebound.
    Reply | Link to Comment
  •  
    Sep 17 04:30 PM
    Hey Botfeeder. Wouldn't that be a pretty good argument for why gold needs to hit at least $1200 then? And to be accurate, it's had more than 1 good day. It's been 2-3 in the last week I believe. I still think gold will remain volatile until it's more certain in the minds of the masses that fiat currencies are not holding their buying power, though.

    Reply | Link to Comment
  •  
    Sep 17 04:36 PM
    Mark Anthony: Since it's fun to play "pick a date and go from there", let me try. Do you think those who bought gold at $46 or whatever in the early 70's gained inflation protection as it rose to $800 in a decade? Do you think people who bought gold in the $200's 7 years ago did worse or better than the stock market? See how silly it is to try to defend a strategy using cherry picked dates?

    Economics didn't start in 1980. Some people are going to have to learn that the hard way. The "rules" change as the world changes. Today we'll soon be seeing the death of the "buy the entire market and hold it and you will get rich" thinking of the 25 year bull market. The reason that is touted is because those touting it came of age in a BULL MARKET! I bet you weren't hearing as much of that in the 70's or 30's.
    Reply | Link to Comment
  •  
    Sep 17 04:40 PM
    Hey Mark Anthony,

    You said, "Right now, I can cite many many things that are much better than gold and silver. So don't fall into a religious thinking that only gold is good. "

    Please tell us what they are. I personally see no reason to buy into the stock market because every stock is now a value stock, most people can't pronounce palladium let alone spell it but gold and silver are crayola crayon colors and easy to spell and thus buy, no one in his/her right mind would buy real estate right now and money markets and CD's are paying below inflation rates.

    The only possible place to put money during a perceived meltdown is in gold and silver. Unless you know something and don't wish to share......
    Reply | Link to Comment
  •  
    Sep 17 04:44 PM
    ChrisB: 1. gold production has been down somewhat hasn't it?

    2. "goldbugs can't bring themselves to sell". Well, sell when? Selling at $800 before the big drop in the early 80's, good. Selling the year before it hit $800, bad. Selling in March '08, good. Selling in march '04. Bad. Selling in July '08, good. Selling last week, bad. So, you tell me, what happens if I sell at $1,000 in a few months. What if gold is $5,000 in 5 years? What if 5 years later it's $800?

    I'm not a "gold bug", never owned it till early '07, but isn't the whole idea knowing when to sell? So far the fundamentals say to me that it's going higher. Is that guaranteed? Nope. But neither is oil, other commodities, US stocks, foreign stocks, or anything else. All I know is I listen to the arguments on both sides, and the ones for gold are much more impressive and rich with detail and analysis. The ones against it are usually just a couple of paragraphs of derision and not much else.

    Reply | Link to Comment
  •  
    Sep 17 06:30 PM
    Lets compare those who held cash from 1980 to those who held gold from then on to today.

    Gold outperformed the US dollar.

    Thats not religious thinking, thats two types of money--with gold performing better than the fiat currency.
    Reply | Link to Comment
  •  
    Sep 17 08:36 PM
    Sometimes the most interesting posts are the historical comments that you see when clicking on the authors name....
    In most cases, their agenda is made clear.
    Reply | Link to Comment
  •  
    Sep 17 10:35 PM
    thank you bruno. mark says the same thing clh says about the guy who bought at 800 28 years ago... mark, i would be really surprised if you've ever held an investment more than 5 years without selling or buying it back. you need to make a better argument because the 28 year phrase is getting old.
    Reply | Link to Comment
  •  
    Sep 17 10:36 PM
    speaking of, anyone heard from clh?
    Reply | Link to Comment
  •  
    Sep 18 12:52 AM
    Speaking of historical facts:

    Median house price in 1970: $17,000 (US Census)
    Price of gold in 1970: $38/oz
    One median 1970 house: 447+ oz of gold

    Median house price in 2000: $119,600 (US Census)
    Price of gold in 2000: $279/oz
    One median 2000 house: 428+ oz of gold

    Median house price in 2008: $210,000 (Natl Assoc of Realtors)
    Price of gold in 2008: $800/oz
    One median 2008 house: 262+ oz of gold


    So gold managed to store wealth over a 38 year interval and then some. Currently able to buy a 'median' house with around 60% of the amount of gold it took just 8 years ago. (Also note that a median house in 2008 was probably nicer than a median house of 1970 or 2000).

    Sure, sometimes gold is worth more than it "ought to be" and sometimes it's worth less than that. Over the long run though, it will buy the same amount of "stuff" regardless of its current 'price'.

    It's a STORE OF VALUE. Not an investment.
    Reply | Link to Comment
  •  
    Sep 18 02:29 AM
    I wish I knew or understood enough to REALLY follow along in the arguments, but thank you. They are compelling and valuable.Especially to those eager to learn as both sides of the fences and not a guy with a pointer telling us how much he made on PM over the last 20 years. OH yeah, than why are you telling us your secret and go keep making that money.
    anyway thank you all, from a newb


    Billy Staples thedarksize.com
    need to laugh about the market? thedowjokesreport.com

    not everything is a gimmick or a scam
    Reply | Link to Comment
  •  
    Sep 18 12:41 PM
    I like how Mark Anthony references the 1980 price. Newsflash, the price right now is where it was in 1980. 40 years later, we'll see people like Mark Anthony saying, people who bought gold in 2012 at $5000 didn't make out. Gold is undervalued right now, and the fact that you cherry pick 1 year where it was overvalued shows how short sighted you are.
    Reply | Link to Comment
  •  
    Sep 18 12:41 PM
    I was just wondering myself about CLH?????

    I told you posters previously as soon as the ALMIGHTY DOLLAR starts its INEVITIABLE spiral into HELL, you won't hear a PEEP from CLH. No comments about us HOARDERS of GOLD/SILVER now, CLH?

    Oh, yes, its early, but the PMs will continue to rise (because the misinformed politicians and greedy Wall Streeters will make profound ERRORS affecting the economy) to NEW highs.

    P.S. I WILL SELL when the time is right! I'm a hoarder, but only until such time as its time to sell.
    Reply | Link to Comment
  •  
    Sep 18 12:46 PM
    To: Chris B

    ARE YOU NUTS?????

    "Tons of gold are mine every day and more mines are on the way"

    That is the most STUPID statement ANYONE (knowledgeable or not about gold) could possibly make. TONS of gold EVERYDAY! More mines on the way??? Unbelieveable!
    Reply | Link to Comment
  •  
    Sep 18 01:35 PM
    User, he's right, tons of gold are mined every day. That doesn't mean that all those tons even put a dink in the physical gold supply. Gold supply goes up about 2% a year at most.
    Reply | Link to Comment
  •  
    Sep 19 12:23 AM
    Smarty Pants :

    Good post . That should prove to all the comparison of the Dollar to Gold .

    As i look back 60 years , gold was about 35 dollars an ounce . Today about 800 + - , so it takes about 23 times as many dollars now to buy an ounce .
    Which one held it's value ?
    Reply | Link to Comment
  •  
    Sep 19 12:33 AM
    About Mark Anthony ,better known as ' Trader Mark " . Following his ideas would have you broke from two years i have looked at his his prognostications . Two years ago he ranted how FSLR was headed for the ditch on the lack Telerium . Well this ditch ran uphill from about 70 to 270 recently.
    So , follow his rants for what they are worth , mostly nothing.
    Reply | Link to Comment
  •  
    Sep 19 09:57 AM
    @lonie

    Thanks. The key is to not 'value' gold by its price in dollars but by what it can purchase.

    Your great grandparents could have sold their (paid for) median house in 1970, bought gold with the proceeds, and buried it in a treasure chest in the back yard (or equivalent).

    If they left a letter with their lawyer for you to open on your 21st birthday telling you where to find the gold, you could dig it up and still buy a median house (or better) with it. No interest necessary.

    If they had simply buried the dollars, you could make a nice downpayment on a new car instead.

    If your 21st birthday happend to fall in 1979 to 1980 or now, you could buy that median house and have quite a bit of gold left over.

    Don't get caught up in the "pricing game", look to the value relative to other tangible assets.

    Also, don't automatically dump on people who keep pointing out the vast changes in the dollar price of gold. You can certainly build wealth by trading the gold price for a profit. I do. But to lock in a long term storage of the wealth you generate you should use those trading profits to buy physical gold (preferably in your possession).

    Buy low, sell high, and keep some of the low priced stuff to "bury in the back yard". Your great grandchildren will be glad you did.
    Reply | Link to Comment
More Comments on GLD ยป
Top Rated Comment Streams:

Numbers are net rating-

See all Top 100 »
More by Tim Iacono

Investment Resources
Money Management
Research
Seeking Alpha provides these ads as a service to its leading contributors
Articles on related themes
Commodities