EDMOND — Some of us consider ourselves contrarians. It comes from the belief, mostly true, that when almost everyone believes in a certain investment idea, the show is probably just about over. We like to think of ourselves as never wrong; we’re just sometimes early. At least that’s what we keep telling ourselves. It’s tough being a contrarian because, even when you’re right, you often have to endure a lot of pain until proven right.

This seems to be the case with gold. I’ve held a small percentage of my clients’ portfolios in gold for several years now as I thought it would be a good currency hedge; and that turned out to be correct. I had a target of about $1,300 for gold.  When it roared to that number and then blew right past it, I felt like the dog that finally caught the car. Now what? Do I sell? Should I buy more?  

The contrarian in me tells me that I should sell because surely when every TV and newspaper commercial screams at me that I need to own gold, then it’s time to head for the exits. But then, the Fed keeps printing money, which drives the dollar lower and gold up; so I should hang on. Worry, worry, worry! Did I mention that I hate gold?

The worst thing an investor can do is to get emotionally involved with their investments. Stocks, bonds and commodities should all be viewed as meaningless love affairs, not potential marriage partners. Yet investors — male investors in particular — have an odd way of developing feelings for the assets they buy. Just a small piece of advice: It’s just an investment guys, not a girlfriend!

In some extreme cases, and with gold in particular, an investor will allow an investment to define them as a person. Being a “gold bug” is not simply believing in the investment merits of gold. It is an identity and one that exhibits many of the characteristics of a radical political movement or even a cult. There is a fundamental belief that gold is the “one true store of value” or the “one true currency.” This is nonsense, of course, but some believe that. I’ve never been much of a gold bug myself.

To be a successful contrarian investor over time, you have to suppress your emotions and political views and remain detached. You have to objectively examine the arguments being made for an investment. And in the words of world-renowned speculator George Soros, you have to “find the trend whose premise is false and bet against it.”

Let’s take a quick look at a couple of the bullish arguments for gold: Gold is a hedge against the hyperinflation and currency depreciation that is just around the corner due to the Fed printing money and out-of-control government deficits. Gold represents stability of purchasing power.

I’ll address these one by one, starting with inflation. If there was ever a non-crisis crisis, it would be the inflation scare of 2010. There is almost universal agreement among gold enthusiasts that there is a wave of inflation coming from the Fed’s actions that will make the United States resemble Zimbabwe.

Really? Recently it was announced that core consumer price inflation (which excludes food and energy prices due to their volatility) just hit its lowest reading since the data series began in 1957. While I’m not a fan of what Fed Chairman Bernanke is doing, he’s worried about deflation, not inflation. The money supply, despite the Fed’s messing with the monetary base, has not grown significantly because money is being destroyed by the private sector faster than it is being created by the Fed.

But the government must be cooking its books, right? Of course it is! That’s why the bond market has pushed bond yields higher. Huh? Oh wait, bond yields are still near all-time lows. What’s up with that? Don’t interest rates go higher with inflation?

Yes, the Fed is manipulating the bond market. We all know that. But the Fed, while the biggest buyer of bonds these days, is not the only buyer. And if bond investors were truly concerned about inflation, the 10-year Treasury would not be yielding less than 3 percent. The 1970s are not making a comeback. Look for a divergence between the bond market and the gold market. It is the bond market that will ultimately be right.

But doesn’t gold at least represent stability of purchasing power in an unstable world? Again, not so much. Consider this quote from the Financial Times: “If there were no dollar, and U.S. shoppers paid for their groceries with gold coins, since 2000 the amount of gold needed to buy a loaf of bread or rent an apartment would have fallen by three-quarters. Deflation of 75 percent in a decade is not an ideal characteristic for money.”

I also should add that investors who held their wealth in gold would have seen their purchasing power ruined in the two decades from 1980 to 2000, and that gold — unlike stock, bond or real estate investments — pays no income.

The basic assumptions underlying the gold bubble are flawed and driven more by charged ideology and anti-establishment sentiment than by actual economics. The time to have bought gold was in 2000, when it traded for less than $300 per ounce and no one wanted it; and not 10 years later after it has risen by more than 400 percent and when it has become fashionable.

Can gold keep going higher? Of course. Will it? I don’t know. The contrarian move would be to sell gold and buy something about as unloved today as gold was in 2000. That’s not a recommendation, by the way. Just an observation. So what am I doing? I’m still holding the gold position for now but keeping a close eye on the exit.  Did I mention that I hate gold? Thanks for reading.



NICK MASSEY is a financial adviser and owner of Householder Group Financial Advisors in Edmond. He can be reached at www.nickmassey.com. Securities offered through Securities Service Network, Inc., member FINRA/SIPC.