Thursday, April 28, 2011

Gold - Time to Sell?

I am holding a 1 troy ounce and a 2 troy ounce coin in my hand right now.  A family member asked me to sell them for them (I’ll get to that later).  I simply find it hard to believe those two small pieces of yellow metal are worth $4500, and fit in the palm of my hand.

These rectangular gold coins reinforce my view that gold is every bit as much a faith based currency as paper dollars.  Those coins are only worth the good faith of those willing to exchange for such a ridiculous amount.  This is especially in light of the fact you can dig gold out of the ground for $450/oz.    

I encourage all gold bugs to go out and actually purchase one of these coins for themselves and thus proving their love for the metal.  You will quickly realize the inherent disconnect and why Warren Buffett finds it absolutely ridiculous that such a small pile of yellow metal can be worth so much.  Absolute lunacy.  I would rather own $4500 of income producing assets such as natural gas wells, a profitable business, or vending machines for that matter.  I believe the serious disconnect has happened because speculators don’t actually take delivery and only exchange little pieces of paper.  Even if someone says they do take delivery, it is ridiculous to think you own a bar of gold in a vault somewhere.  

Selling these coins are proving to be interesting to say the least.  I am no expert on gold coins, but the first bank wouldn’t buy the coins because something wasn’t quite right.  I called one coin dealer who said to come in because he doesn’t give quotes over the phone.  He further explained that once he sees the coins he would write a price on a piece of paper and that price is final because he doesn’t negotiate.  I might be wrong, but I don’t deal with the mafia.  We have found another bank who will buy the coins but the transportation cost seems high.  I’m sure we’ll be able to find a buyer I’m sure but it’s definitely not as simple as you might think.  This reminded me of an article on diamonds entitled, “Have you ever tried to sell a diamond?”  

Diamonds are another mined mineral whose value is purely subjective and in a way the De Beers Company has played us for fools.  We seem to have taken all those, “a diamond is forever” commercials to heart.  Everyone buys diamonds with the attitude to own until death (or divorce).  This motto is similar to Warren Buffett’s motto, “a stock is forever.”  If you think I am joking go ahead and try to sell a diamond ring.  The appraisal certificate will mean little to the buyer.  Loose diamonds are even worse to sell.  To read the full article on diamonds, Click here

Anyway, these two little gold coins will come out of our family members safety deposit box and put into the buyer's safety deposit box.  Lunacy.  Gold is taken out of the ground in South Africa and put into the ground at Fort Knox (with a blast proof 22 ton door).  Aliens would laugh at such a transaction.  Now I don’t know how far this gold run will go but as Warren Buffett said at his 2006 annual meeting, “after speculation takes hold... at midnight everything turns into pumpkins and mice and there are no clocks on the wall.” 


Best Regards,
Kevin

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