The zero income flaw
Because gold produces zero cash flow, it presents a major conundrum for retirees or anyone whose main investment goal is to generate more income.
While owning physical gold is psychologically comforting there are no guarantees that it will perfectly hedge against future increases in inflation or a currency meltdown.
In fact, gold’s biggest shortcoming is the fact that it generates no earnings, no dividends, and no income. This makes the risk dynamics of gold compared to stocks and bonds strikingly different.
And while a lack of income might not seem like something important to a speculator, it is to everyone else. (The ETF Profit Strategy newsletter’s May Gold Income trade converted this dead asset into a cash cow which vacuumed in $1,200. That’s something not even gold coins – in all their glory – can do.)
Safe haven doubts
Referring to the previously mentioned definition of “safe haven,” neither gold nor silver fit that current description.
The ETF Profit Strategy newsletter keenly observed just one recent example of this among many:
“The 4/4/12 market selloff took the Nasdaq-100 and S&P 500 lower by 1.46% and 1.02% respectively. Instead of behaving in a defensive manner, instead of being a haven of safety, instead of zagging when stocks are zigging – the SPDR Gold Shares (NYSE:GLD) had the audacity to fall 1.68% while the iShares Silver Trust (NYSE:SLV) moxied up a 4.19% loss.”
The fact that precious metals (NYSE:GLTR) have experienced deeper declines than stocks on down days is problematic to the “safe haven” theory.
The ETF Profit Strategy newsletter reports key trading levels for both gold and silver. And if GLD or SLV slice right through the thresholds we’ve outlined without any sort of resistance, both metals could be in for bigger losses ahead.
On the other hand, if they bounce and hold, it might signal a good buying opportunity.