One thing we’ve learned in our time in the investment industry is that people love things that go up. They also hate things that go down, albeit with more intensity.
So when gold was going up in every consecutive one of the last twelve years, people quite liked it. But today its price is going down and people don’t like it anymore. Actually, its price has gone down by quite a lot, with the second quarter of 2013 seeing the biggest percentage price decline since the collapse of Bretton Woods.
Its price is now back to where it was in the summer of 2010, leaving anyone buying the metal in the last three years, in paper terms at least, under water. It’s not so much that people don’t like gold anymore—it’s that they hate it.
Of course, this makes gold more interesting than it has been in many years. There is blood on the streets. Asset write-downs in the gold mining industry abound. The South African mining body says sixty percent of that country’s mine production is unprofitable at today’s prices.
Richard Russell has fittingly described gold as a “stairway to hatred.” So against our better judgment, despite the trepidation one feels before discussing gold, and mindful that the last thing the world needs is another opinion on gold, we nevertheless venture our own in the paragraphs below. In doing so, we will try to focus on what we know, leaving the speculation over what did or didn’t cause the recent price drop to others.
But before we do, let’s consider the following story taken from the current book of the moment here in the Edelweiss office, Nassim Taleb’s Antifragile (from which we’ve stolen the title to this piece). It is about a turkey, unaware of Thanksgiving, using past data to make future projections:
"A turkey is fed for a thousand days by a butcher; every day confi rms to its staff of analysts that butchers love turkeys “with increased statistical confidence.” the butcher will keep feeding the turkey until a few days before Thanksgiving......