BEING BULLISH ON GOLD IS SO COOL
High school is an interesting place. You essentially have a group of people who are entirely unsure of their identity in the present or at anytime in the future. This causes a hierarchy to take form. Those who are deemed the coolest are held in god like status at the very top. Most fellow students admire them, some dislike them, but overall they have a lot of influence over what or who is cool at school.
An interesting article came out about gold yesterday. It mentioned how investors had loaded up on gold, with the central banks being the only holders of note who can rival investors with their gold holdings. The article was basically a gold bull orgy. Analysts are bullish, individual investors are bullish, George Soros is bullish, John Paulson is bullish. The article basically leaves you with the perception that gold will be infallible going forward.
When the cool guys (Paulson and Soros) start getting mentions, it serves as a psychological safety net for investors. It's similar to high school, where you feel like if you are hanging around the "cool guys", you have a social force field around you that makes you more handsome, more funny, and all around a much cooler dude. Individual investors are the same way, the standard Joe Investor upon reading an article about the benefits of owning gold and knowing that he is in with the coolest guys in school -- Soros and Paulson -- will develop a false sense of safety. After all, Soros and Paulson are two of the greatest financial minds...what could possibly go wrong?
Unfortunately, for the individual investor...a lot can and will go wrong with an investment in gold while it's being advertised as an investment that is destined for continued greatness. What individual investors don't realize is that while Soros and Paulson may have positions listed in their filings that involve long holdings amounting to billions of dollars in gold, they can easily neutralize or reduce those positions through a million different ways that are not listed in the filing. The billions of dollars in gold longs, may be in the process of being reduced right here and now, through various means of hedging or outright selling. The filings showing gold holding are after all delayed by a few months.
And let's not forget the fact that it is the very nature, the essence, the goal and duty of the market to destroy the wealth of those who pile into trades and ideas that are overcrowded, oversubscribed and create an air of overconfidence. Gold as an investment possesses all of these qualities at present. It doesn't mean that the metal can't go higher, as bubbles are unpredictable and typically end up lasting longer than most expect. However, we can be confident that a large majority of investors are currently being setup for another round of pain, disenchantment and disappointment when this latest fad amongst the investing public comes to an end.
