Dump Facebook, Buy gold Posted by James Randolph on June 01, 2012
The recent Facebook debacle is the best modern-day evidence we have of the necessity of purchasing real value assets instead of hyped up paper assets—in other words buy gold. Facebook is essentially an example of everything that can go wrong in the modern market and the best argument for buying gold in order to store one’s personal wealth.
There is no question that Facebook was overvalued from the very start. The several moves the company made in the days prior to its IPO were overly hopeful at best. Despite all the warning signs, however, the American markets have been in such doldrums for so long a period of time that the prevailing sentiment was one of investors looking to buy into almost anything that seemed bright, new, and revolutionary.
Unfortunately, this led to a dynamic in which reality was far too easily ignored. Facebook shares were originally valued at US$38 and as of today they are currently valued at just over $27. The biggest stock newsmaker and the biggest IPO of at least the past year is the biggest loser.
The spot price of gold rose 3.2 percent during intraday trading, breaching the psychologically important $1600 per troy ounce level and reached as high as $1610.20 per troy ounce. In an intraday move 3 percent is significant in any commodity and it should serve as an indicator of the vitality of gold and silver. Silver showed a 2.71% gain and is bidding again above the $28 dollar level, now at $28.46 per troy ounce.
Of course, the message has consistently been to buy gold and ignore these hyped up news stories about stock market events that are useless at best. It’s understandable to get taken in by optimistic news in this environment, but it is responsible to honestly evaluate performance, to hedge your positions with real assets such as gold, and to unwind losing positions and recuperate your losses through responsible investing.
The most responsible type of investing we have in this market is investing in precious metals, particularly gold for the type of investor that would invest in Facebook.
In a paper market, such as the one we’re currently muddling through, tangible assets have a particular power that can’t be underestimated. One of the reasons gold is again above $1600 per ounce is that it is a real asset in a paper economy and thus that much more valued. The power of real assets has been apparent to investors for at least three years as we’ve seen international finance go the way of the bailout, but this Facebook fiasco should remind us all not to forget so quickly what international finance has become.
Given the performance of gold over the past 10 years and the fact that the Dow Jones is now red for 2012, it is most important to recognize the need for investors to buy gold in this market environment to hedge positions they make in stock markets which have become unrealistic.