Barry Ritholtz has been receiving a lot of praise for his 2,500-word Bloomberg listicle “10 Reasons the Gold Bugs Lost Their Shirts”. Which is weird, because it’s deeply flawed. Here, then, are the top ten places he goes wrong:
1. The title. Ritholtz frames his entire piece as a “post-mortem” examining a “debacle” which resulted in certain investors losing their shirts. But he never identifies a single such investor. The rest of the article is effectively moot if people haven’t lost a lot of money on gold. And so it’s telling that no sooner is the concept raised than it is dropped. Yes, the gold price has fallen from its highs. But without knowing where people bought, and whether they have sold, it’s a case of overstretch to thereby deduce that many gold investors have lost most of their money, as Ritholtz’s headline implies.
2. Any idiot can make money in the past. Every year, the Financial Times’s John Authers extols the astonishing returns posted by Hindsight Capital, two of whose spectacular 2013 trades involved shorting gold. Hindsight Capital, of course, is a joke: its positions are revealed only at the end of the year, when we know exactly what happened. But Ritholtz seems to be absolutely serious here: “As an investor, I am a gold agnostic: When used properly, the metal is a potentially valuable tool in an investment arsenal. There are times when it makes for a profitable part of a portfolio, as in the 2000s. There are periods when it is a speculative and dangerous trade—such as the 2010s.”
The only thing that Ritholtz is saying, here, is that the price of gold went up, and then it went down. His self-identification as “a gold agnostic” basically amounts to saying that it’s a good idea to own gold when it’s going up, and a bad idea to own gold when it’s going down. On that basis, it seems, it was a good thing to own gold in the 2000s, and a bad thing to own gold in the 2010s. To put it mildly, this is not helpful.
3. He relies on tautology. Ritholtz goes into a lot of detail about the exact movements of the gold price, telling us that it peaked above $1,900 per ounce. “Unless something radically changes in the near future,” he intones, “that may very well be the peak for this secular cycle.” Well, yes. Gold is