A Golf Caddy, his mom, and Warren Buffet on Gold

A caddy on the golf course this past weekend asked one of Attain’s partners (Jeff Malec) what the caddy’s mom should do with her Gold bars. She thought it was a no brainer to load up on a few hundred thousand dollars worth of physical yellow metal back in 2010ish, but is having second thoughts of late with the barbarous relic off more than 30% since its highs, while other commodity markets are making new highs  (Coffee up 75% YTD, Cattle at all time highs – past performance is not necessarily indicative of future results).

Mr. Malec asked the caddy if he had ever heard of Warren Buffet. The caddy said he had, and Mr. Malec proceeded to tell him to pass along Buffet’s thoughts on Gold:

“Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

Here’s some other good Buffet quotes on Gold.

But those reading the Wall Street Journal of late might think the play is to ditch the physical gold and instead invest in Gold Mining companies. The WSJ detailed about a month ago (Aug 8th) how the Gold Miners Index (GDX) was up 26% YTD, with the catchy headline “Hedge Funds are Digging Gold Miners”.

WSJ Pic
 (Disclaimer: Past performance is not necessarily indicative of future results)
Chart Courtesy: WSJ

We’ll admit their graphics are pretty chic, and with a quote from BlackRock and a Gold Fund about the Gold Miners rebounding, I’m sure more than a few people were swayed to get into Gold Miners.

“Gold companies just don’t look as expensive as they did in previous years… and you have a sentiment that is warming toward gold,” said Catherine Raw, a portfolio manager for BlackRock Inc.’s $451 million Commodity Strategies Fund. She raised her fund’s exposure to gold miners at the start of the year.”

“The industry has done a lot of belt-tightening and a lot of soul searching, and is on much firmer footing that it was two years ago,” said John Hathaway, who manages $1.6 billion at the Tocqueville Gold Fund.”

Except, here’s the thing…. It looks like there could be nothing worse for your Gold exposure than doing it via Gold Miners: [Tweet “”It looks like there could be nothing worse for your Gold exposure than doing it via Gold Miners.””]

Gold Miners Chart (Disclaimer: Past performance is not necessarily indicative of future results)

That 26% increase in GDX doesn’t look like much on this chart, and the index is currently in a 50% drawdown since the start of 2008. So much for soul searching…. As we talked about before, investing in commodity production companies isn’t easy. You not only have to determine where the commodity is going, but also if the business side is being successful at the same time.

So whether the Caddy’s mom follows Warren Buffet and switches into an investment with a little more utility, or keeps holding her Gold bars (or better yet – free up some capital by switching into Gold Futures, which you can in the graphic above track nearly exactly the same), she should beware jumping into Gold Miners, no matter what Hedge Funds are supposedly doing via the WSJ.

P.S – If you’ve ever heard the story about the Wall St. guy selling right before the Great Depression because the shoe shine boy gave him a good stock tip, that’s a type of contrarian investment where you go the other way as soon as its apparent everyone is looking at something the same. Bespoke Investment Group actually plotted such headlines (via the Drudge report) versus the market and you can see quite a contrary indicator). Along those lines, what do you guess the Gold Miners have done since their focus in the Wall Street Journal?

GDX (Disclaimer: Past performance is not necessarily indicative of future results)

 

Write a Comment

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

logo0