Category Archives: Gold

Inflation Where Art Thou?

Posted March 14, 2013 by admin. tags:
Gold Bars

Written by Nate White, Chief Investment Officer of Paragon Wealth Management.

Could gold, the traditional and popular hedge against
inflation, actually perform poorly during an inflationary period thereby
frustrating its use as a hedge?  For years now many have been worried that
due to unprecedented central bank easing and huge government deficits we should
be experiencing high inflation.  Instead, with the CPI at 1.6% inflation
is benign at best.  We can “thank” the financial crisis for that.

The price of gold seemed to confirm inflation worries by having
a stellar decade long run from $300/ounce in 2001 to over $1,800 by August of
2011.  Since then, the price of gold has stalled.  Perhaps gold moved
up less because of inflation worries and more because it was a recipient of the
money issuing forth from the central bankers?  Now in anticipation that
the easy money policies could start to end within a year or two could this be
the reason that gold prices are stalling out?

What is equally interesting to me is that now as the economy
is starting to strengthen somewhat as it leaves the financial crisis behind we
could actually be on the cusp of inflation starting to pick up.  As
confidence returns, the massive reserves in the banking system could finally
start to move out into the economy as lenders open up and demand for credit
increases.

Productivity and margins are strong in corporate America and
at this stage of the economic cycle as demand picks up they will have to hire
more workers to keep up with sales.  This would result in the wage
inflation that the Fed likes to focus on.  However, as inflation picks up
and the Fed finally has to start reining in the money supply gold could
actually decrease.  It would be the opposite of what happened over the
past decade.  Just as stocks often price in all of the good news perhaps
gold has done the same in regards to inflation?  Asset prices love to move
ahead of the actual events.  Perhaps it is a good time for gold investors
to lock in some gains if they were using it as a hedge against inflation.

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

What About Gold?

Posted March 31, 2011 by admin. tags:Tags: , , ,
Gold Coins

photo by motoyen

Written by Dave Young, President of Paragon

We are regularly asked our opinion on whether or not investors should buy gold. We’ve written about it in the past, but I wanted to give you an update of where we stand now.

Gold is being promoted on a host of television shows. There are a nonstop barrage of advertising promoting it.

Usually buying gold through the brokers that are pitching it on TV is the most expensive way to buy it. If I wanted to buy gold, I wouldn’t buy it through those costly pitchmen.

For the record, at Paragon we are not buying gold right now. That doesn’t mean we are anti-gold, it just means we don’t want to buy it right now. Over the years we have bought and sold gold many times when the valuations made sense.

Our reluctance to buy gold doesn’t mean it won’t keep going up from these already stretched levels. Once a trend establishes itself, it can keep running as long as people keep buying.

An upward trend is not a reflection of value, it simply means there are more buyers than sellers. Right now there seems to be no shortage of buyers.

We aren’t buying gold right now because we cannot justify that it is worth what it is selling for. It’s valuations are severely stretched.

Fear is driving gold purchases.

There is uncertainty in the Middle East, issues with Libya, European debt issues, endless U.S. Government spending and the all encompassing fear of inflation.

At Paragon, we make money by buying early in trends and selling when the trends start to roll over. Most trends in the market last between six and 24 months. While we don’t know how much further gold will run before it rolls over, we do know that it is not early in its trend. We also know that it is anything but cheap.

The only way I would buy gold right now would be for a short-term trading play. However, if I really wanted to make a short-term trading play on metals, I would buy silver instead of gold. It tends to follow the same trends as gold, but move a little harder up and down. Bottom line, I would not take a long-term position in gold at these levels.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

Should You Buy Gold?

Posted December 17, 2009 by admin. tags:Tags: , ,
GOLD!


photo by motoyen

Written by Nathan White, CFA

Several people have asked me about gold lately.

They are curious as to whether they should buy it or not. After all, it is hitting new highs. It seems like they all know someone who bought it around $300 an ounce.

I hear radio advertisements all the time that tell people to buy gold because of- the usual litany of fears (i.e., dollar crash, inflation, etc.) The last time I heard things like this was during the tech bubble when everyone wanted Internet gold.

What happened to gold investors last time people were buying for today’s reasons?

A recent article from Bloomberg.com by Nicholas Larkin and Millie Munshi provided some interesting insights. Those who bought near the peak in January 1980 on an inflation-adjusted basis are still 79 percent away from getting their money back. That is about a 44 percent return over 30 years. The average U.S. checking account rose about 92 percent over the same period with stocks and bonds doing much better.

Gold pays no interest, has virtually no industrial use, and  you must pay storage fees to hold it.

It is a purely speculative asset which ironically attracts some of the most traditionally conservative type of investors — go figure.

Do not get me wrong, I am not anti-gold, but at this point, the reward is not worth the risk.

It could keep going all the way to $2,000 an ounce for all I know making me look like a fool for writing this, but the contrarian in me does not like to buy high.

Gold is pricing in all of the fears for which people are buying it. At this point, you are just hoping some sucker will be willing to pay a higher price than you before the game ends.

I would be selling gold at this point, not buying.

What do you think? We want to hear your feedback.

Paragon Wealth Management
is a provider of managed portfolios for individuals and institutions.
Although the information included in this report has been obtained from
sources Paragon believes to be reliable, we do not guarantee its
accuracy.  All opinions and estimates included in this report
constitute the judgment as of the dates indicated and are subject to
change without notice.  This report is for informational purposes only
and is not intended as an offer or solicitation with respect to the
purchase or sale of any security.  Past performance is not a guarantee
of future results.

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