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7 Misconceptions About the Gold Market You Need to Know

Understand the investment before deciding to invest

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As you read this, I am knee-deep in gold bugs at the 39th annual New Orleans Investment Conference, held November 10-13 at the Hilton on the Riverfront. I’ve been a panel moderator, MC, or host at this conference for over 30 years. Also in New Orleans, Navellier portfolio managers Michael Garavanta and Michael Borgen are hearing Michael (“The Big Short”) Lewis speak at a FactSet market symposium.

I’m not quite sure what all those Michaels are discussing, but this conflict between two market world-views reminds me of my first New Orleans conference in 1981 when the gold bugs were meeting next to a conference of big bank presidents at the Hilton. I noted some hostile encounters in the hallways as the bankers called the gold bugs “crazy” and the gold investors warned of a coming run on the banks.

Over the years, I have come to see the virtue of both stocks and gold, but I’m still caught in the middle – often literally, as a panel moderator – between a war of words between fans of the stock market and the gold bugs, who often distrust paper-based investments. Still, I am more convinced than ever that there needs to be a truce between the Gold team and the Green team. Both investments have their role.

There is no need for this war of words. A well-balanced portfolio has plenty of room for a large holding of equities and a smaller allotment for gold. Unfortunately, many stock market analysts tend to evaluate gold as if it were a stock.

From what I read in the established financial press, analysts have seven basic stock-oriented objections to gold. They are concerned that (1) gold doesn’t throw off earnings, (2) gold does not pay interest, (3) gold is merely an inflation hedge, or (4) gold is merely a crisis hedge; (5) gold in the last decade was a classic “bubble; (6) gold has little or no practical (industrial) value; and (7) the recent sales or shorting of gold ETFs and futures contracts mean gold will continue to fall or remain flat.

It’s time to look at these seven assumptions about gold with a mutual respect for both stocks and gold.

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