I'd Like To Personally Welcome David Einhorn To The "Gold Bug" Club
Although he had a rough 2008, Greenlight Capital's David Einhorn is one smart-cookie and now it seems Mr. Einhorn is taking the advice of his Grandpa Ben and buying Gold for the first time.
In a letter to investors, Mr. Einhorn said that since he was 10 years old his grandfather has warned him that investing in bullion and gold-mining stocks was the only "sensible" thing to do given the threat of inflation and the risks of so-called fiat currencies. He said, "To everyone's dismay, we believe some of Grandpa Ben's predictions are playing out." He also said, "The size of the Fed's balance sheet is exploding, and the currency is being debased."
Einhorn is buying gold and call options on gold and Market Vectors Gold Miners ETF (NYSE: GDX), which is an exchange-traded fund which seeks to replicate the price and yield performance of the NYSE Arca Gold Miners Index. Top holdings of the index include Barrick Gold (NYSE: ABX), Goldcorp (NYSE: GG, Newmont Mining (NYSE: NEM), Kinross Gold (NYSE: KGC), and Yamana Gold (NYSE: AUY).
I've personally been "long" gold for a little while now, also due to the financial crisis. So as an official card-carrying member of the "Gold Bug" club, I'd like to welcome Mr. Einhorn.
I've been building my gold exposure through SPDR Gold Shares (NYSE: GLD).
I got long gold in the fall of 2008, when it was in the mid-$700 range, for many of the same reasons Einhorn's grandpa cited. I believe the Fed is trying very hard to stop the deflation trend and to re-inflate - sooner or later it will happen and when it does it won't be easy to stop. In addition, countries around the world are faced with the same problems. They will likely de-value their currencies. Gold should skyrocket as investors run for the safety of Gold as a currency.
While I'm a solid gold bull, I still have my reservations about the precious metal. Here are some of the things that cross my mind as I contemplate taking my profits. Here are my top 3 concerns:
1. The world is having its largest financial crisis since the great depression, yet gold is only modestly higher. Other commodities have been smashed.
2. Once you pull gold out of the ground, it remains forever. This is unlike other commodities like crude, which when it is used can never be replaced.
3. Everyday I hear the stupid promoters on TV ads and at local jewelry stores, saying "Buy Gold!" or "We Buy Gold!" As a contrarian this is not a good sign.
While it is clear I have concerns about holding my Gold "long", I believe the risk/reward favors holding Gold exposure, if for nothing else, as a hedge.
Lon Juricic - President StreetInsider.com
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