October 14, 2019

3 Reasons to Avoid Gold Like the Plague

Gold coins, a popular form of gold investing

The hedge fund manager of Tiberius Group gave 3 reasons to avoid gold like the plague. Despite gold’s surge, Christoph Eibl, manager of the Swiss commodities hedge fund, says the metal should plunge when fundamentals catch up to it, reports Frank Tang at Reuters. Tiberius manages $2 billion in commodities futures, bets on the future price of physical goods, or commodities.

“Gold investment offers investors a psychological safe haven, but has nothing to offer in the long run.

1. From a strategic long-term perspective, you don’t want to be investing in gold and silver. The moment when you have no ETF buying or investment buying, who would buy your gold? Not the Indians, they will not jump in at these levels,” Eibl said. Exchange-traded funds (ETF’s) have provided a significant boost to gold’s run. India has traditionally been the world’s largest consumer of gold.

2. Asked how low the gold prices could fall, he said “Below $1,000″ an ounce, which better reflects bullion’s production cost. Spot gold traded at around $1,780 an ounce on Tuesday. The price of gold has rallied furiously in the past ten years. The metal traded at just $250 in 2001.

Eibl said that, from time to time, his firm maintains short positions to bet against any upside in the price of gold. “We know it’s too dangerous to stand in front of a truck that may run you over,” he said.

3. Ten years ago, silver was trading at around $4 an ounce when the silver market was at a 10 percent deficit, and now silver is trading at around $40 with a 30 percent market surplus. “I don’t have to be a rocket scientist to see that something is going wrong,” he said. Unlike gold, however, PGM exchange-traded funds are not liquid enough to significantly underpin buying, Eibl said.”

Warren Buffett responds frequently to questions about investing in gold. Eibl’s comments echo Buffett’s sentiments that the metal has nothing to offer investors in terms of providing income – it just sits there. Buffett likes dividend paying stocks and made headlines with recent high-yielding investments in GE, Goldman Sachs, and Bank of America.

A smarter play may be dividend-yielding gold stocks, which have lagged gold’s run. The long-term investor may be wary to jump in. With gold at an all-time high, hedge fund managers are likely to take profits soon. There are more than 3 reasons to avoid gold like the plague.

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