(Yet Another) Case For and Against Gold

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Precious Metals

Stories and opinions on whether to buy or sell gold seem to be a dime a dozen these days (more likely, it has always been this way), and there’s no better time for a gold rush of this coverage than the climate we have now: First, whole European governments and their economies essentially went belly-up; then protests erupted across the Middle East from Tunisia to Bahrain, upending decades of authoritarian governments; and then to top it all off, an earthquake unlike we’ve ever seen in our lifetimes caused a massive tsunami strike off Japan’s east coast. With stocks and many commodities plummeting, the conversation comes back to gold.

A “For and “Against arena to discuss contentious issues is very popular in the press, and the Wall Street Journal resorted to the method last week to take a look at why (or why not) an investor should consider the yellow metal as part of his/her or their company’s portfolio. The front end of the story (non-story?) was indeed very enticing: we learn that the site of the single largest accumulation of gold is in the New York Federal Reserve’s vaults, that the US in general is the largest holder of gold in the world (8,134 tons; never mind that China seems to be fast catching up), The paper invited two expert analysts, Janet Briaud, a certified financial planner and partner at Briaud Financial Advisors in Texas, and Lewis J. Altfest, chief investment officer at Altfest Personal Wealth Management in New York, to give their takes on the subject.

Even though Altfest teaches at Pace University in New York, we can clearly see by both of their titles (Briaud Financial Advisors, Altfest Personal Wealth Mgmt.) that they’re running they’re own personal vehicles, speaking for themselves rather than a bigger conglomerate. Whether this helps or hurts is beside the point; Briaud makes the traditional case for gold investment (inflation hedge, simplicity of portfolio integration, highly valued by cultures across the globe, etc.), but Altfest’s contrarian viewpoint keys into what matters for us: building things, and the tangible incomes that result.

Even though gold may historically have a negative correlation with stocks or real estate, Altfest maintains that the gold price is nothing more than a speculator-driven show, subject to astronomical spikes and abysmal dives. Sure, it looks pretty as jewelry on one’s hands or neck, but that’s about all it is, he says; income-and-profit production (businesses and their stocks) is key.

“I believe U.S. stocks will do well over the next several years, Altfest writes. “In my opinion, growth in the economy and corporate profits will exceed expectations, boosted by U.S. inventiveness and effort plus large excess capacity in labor and plant. As a result, doesn’t that augur poorly for any investment that moves in the opposite direction of stocks?

Let’s hope he’s right for the manufacturing sector. Whether gold makes its way into a company’s or individual’s portfolio’s or not, the best thing that could happen moving forward is increased industrial demand in housing, commercial construction, and infrastructure both domestically and in emerging markets, driving the need for gold as a hedge down. Last I checked, gold cannot be used to build cars, trucks, ships, bridges or houses, so cannot produce tangible income.

Besides, I need to buy a wedding band; lower gold prices would be awesome right about now.

–Taras Berezowsky

*Please click here to download the MetalMiner Conflict Minerals Legislative Guide, covering the details of the new Dodd-Frank Wall Street Reform and Consumer Protection Act and how mandated audits will affect companies that purchase tin, tantalum, tungsten and gold.


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