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The Not-So-Surprising Truth About Gold Bugs

Before you buy into gold, consider the track record of those behind the hype.

Earlier this summer, we published a thorough review of some of the most aggressive bear market predictions made over the last several years — all of which proved to be way off the mark. As a follow-up to that piece, we are now highlighting another group of prognosticators that has experienced the same dismal results.

The Gold Bug, a first cousin to the Perma Bear, also sees a future filled with doom-and-gloom. He is convinced that a collapsing dollar, runaway inflation, and general economic chaos are right around the corner. And he believes that gold (and perhaps a subscription to his newsletter) is the answer for concerned investors who share his perspective. And yes, there do exist gold mutual funds and gold ETFs for such investors.

The analysis and prediction put forth by gold bugs is certainly creative. It has also been very wrong. Below is a review of various predictions for gold prices over the last decade or so, starting with some of the more vocal proponents. (Note that we’ve excluded some occasional gold fans such as Jim Rogers, Nouriel Roubini, and Marc Faber who have demonstrated an ability to speak rationally about gold in the past.)

Peter Schiff

Peter Schiff is the CEO of Euro Pacific Capital and a former candidate for the U.S. Senate. A complete indexing of Schiff’s predictions would require a small army of analysts, but a quick sampling should illustrate the point. Exhibit A comes from September 2009, about six months after stock markets had bottomed:

At the time, Schiff was very confident that:

  • The Dow and gold would move from a ratio of about 10-to-1 to 1-to-1; and
  • There was “a lot of value” in China, whose currency could double or triple once depegged from the dollar.

In 2011, Schiff claimed that the U.S. was in a recession. In 2012, he predicted an imminent collapse in bond markets.

In 2013 — in the midst of what he called a “a major, historic gold bull market” — he predicted another housing market collapse.

In explaining why markets seemed to continually shrug off his predictions, Schiff had some choice words for his fellow man:

People are as dumb as they’ve always been [but] the sentiment is wrong, they should be buying gold.

In 2014, he encouraged Americans to move to Puerto Rico because “the opportunities and the incentives are really, really too big for people to pass up.”

It’s now 2015, so it seems safe to say the U.S. didn’t enter a recession in 2011. The Dow-to-gold ratio is at about 16-1, and the renminbi is at least close to a fair value after appreciating less than 10 percent since 2011. Bond and housing markets are yet to collapse, but Puerto Rico is a mess.

Anyways, here’s what Schiff is up to in 2015:

To his credit, one of Schiff’s predictions has proven accurate: some people are dumb, as they’ve always been.

Schiff hasn’t had a great track record recently with his predictions, so hopefully this 2012 gem will prove to be off-the-mark as well:

Albert Edwards

Albert Edwards proves that gold-to-the-moon calls are no longer exclusive property of the newsletter crowd. Edwards has what appears to be a real job, as a strategist for French Bank Société Générale. He’s used that position to throw out a number of bold gold predictions over the years, highlighted by this 2013 call:

Edwards has been consistently bearish — he has the S&P-to-450 calls from all the way back in 2010 to back him up — but explained this seemingly foolish prediction in 2013 with a quote from Rabbi Shlomo Riskin:

When you’re one step ahead of the crowd you’re a genius. When you’re two steps ahead, you’re a crackpot.

Edwards is still employed by SocGen, and still churning out nonsense two steps ahead of everyone else.

Porter Stansberry

Porter Stansberry is a newsletter publisher who was charged by the SEC in 2003 of running a “scheme to defraud public investors by disseminating false information in several Internet newsletters.” He ultimately was fined $1.5 million.

The case has done very little to curb his bold predictions In 2009, he made the case for $10,000 gold:

In late 2012, after gold had peaked below $2,000, Stansberry remained bullish on precious metals:

In 2013, he encouraged investors to have 30 percent of their portfolio in cash and gold. He noted that investors shouldn’t buy gold because of supply and demand, but rather “as a hedge against the failure of financial institutions, whether it’s the dollar failing or JPMorgan or your credit union down the street failing.”

In 2015, Stansberry is still pumping gold and encouraging investors to purchase coins as a store of value. He’s still certain that a jump in gold prices is coming:

Just remember: The price of gold isn’t changing. It’s the dollar’s value that’s changing. And it’s going to collapse at some point in the near future. It’s a lock.

Eric Sprott

Eric Sprott is a billionaire hedge fund manager who has made a number of savvy investments over the years. But he’s also whiffed on several of his predictions for gold in recent years.

In September 2013, he predicted gold would head to $2,400 by the next summer. Prices didn’t rise, but Sprott’s optimism surged; the next summer, he was claiming that gold would head to $5,000 or even $10,000. He also came up with some pretty creative narratives that could push gold higher:

Sprott pops up regularly to discuss all the reasons why precious metals should rally.

Halftime Entertainment: Donald Trump

Donald Trump isn’t a vocal gold bug — he has between $100,000 and $250,000 in physical gold according to recent regulatory filings — but he did get caught up in the excitement in 2011. When leasing out some office space to precious metals dealer APMEX for a New York office, Trump accepted the $200,000 security deposit in gold.

At the time, Trump seemed to predict that other landlords would soon be following suit:

It’s a sad day when a large property owner starts accepting gold instead of the dollar. The economy is bad, and Obama’s not protecting the dollar at all….If I do this, other people are going to start doing it, and maybe we’ll see some changes.

Gold was worth about $1,870 an ounce when Trump took the deposit; it is now hovering around $1,100.

Rob McEwen

Rob McEwen is the former chairman and CEO of Goldcorp, and now the CEO of McEwen Mining. Not surprisingly, he has been consistently bullish (and wrong) on gold. In 2010, he foresaw gold hitting $5,000 within two years.

When 2012 came around, he simply reiterated his prediction for gold to hit $5,000. In late 2013 he believed gold was nearing a bottom and by mid-2014 he was sticking to his $5,000 call:

Mining executives and gold industry leaders often pop up on TV to make consistently bullish predictions. Though they may have a bit of expertise in the area, there are obvious conflicts as well — specifically that the profitability and survival of their companies depends on high prices.

And On and On…

The list of ridiculous gold-to-the-moon calls can go on and on. The following table shows a very partial list of predictions made by various “experts” going back to 2002. This article concludes with a list of links to the original sources of these predictions:

The “experts” above have so far gone 0-for-79 on their predictions. Below are a few of the more entertaining excerpts from the experts.

Stewart Thomson:

The gold bears will be destroyed, and everything they made you afraid of will seem ridiculous, in hindsight.

Robert Lenzer:

Think of gold as the ultimate chicken soup for all the world’s ills.

Michael Yorba:

That’s why I think we will see $3000 on Gold and $300 on Crude Oil and Yes, I did the technical analysis to arrive at the projected prices on gold and oil.

Roland Watson:

When I first began to talk about gold hitting over $10,000 an ounce and silver going over $700 an ounce in our lifetimes, various people greeted me with general incredulity.

Howard Katz:

The only thing which can stop this and invalidate my $14,000 gold prediction is some kind of political “miracle” such as a sweeping Republican victory in 2010.

My personal favorite from this group is Clem Chambers, a contributor to the “Intelligent Investing” channel on Forbes. His February 2012 column included a prediction for gold to hit $5,000:

This 2012 column is truly a masterpiece; Chambers trashes gold throughout, but somehow concludes that it is headed for $5,000. Some excerpts:

This might sound like a foolish prediction…

The yellow metal is beyond rationality.

So much for gold’s price stability!

Gold makes terrible money.

I’ve read this column three times now and I still don’t understand how Chambers justifies his $5,000 price target. It seems to be based on the fact that people are “hypnotized” by gold. Again, this advice is part of the “Intelligent Investor” channel at Forbes.

Pet Rock

The reality of gold as an investment is summed up brilliantly by Jason Zweig:

You will put lightning in a bottle before you figure out what gold is really worth…own gold if you feel you must, but admit honestly that you are relying on hope and imagination.

Predictions for gold to skyrocket can be exciting for a number of reasons; beyond the potential for instant wealth, they often make an emotional appeal to a specific worldview. Hopefully the numerous examples above illustrate that compelling and creative predictions can also be dead wrong. So-called experts have no more of a clue about future of gold prices than you or me. They just have more hope and imagination.

I’ll close with a picture worth more than the 1,000+ words above — as close to perfect a summary of gold bugs as you’ll ever find:

Gold Prediction Sources

The following names correspond to the table above, and are linked to the source of the gold prediction:

Adam Hamilton
Ambrose Evans-Pritchard
Arnold Bock
Aubie Baltin
Barry Dawes
Barry Elias
Ben Davies
Bill Bonner
Bill Murphy
Bob Chapman
Bob Kirtley
Byron King
Chris Mack
Chris Weber
Christopher Wood
Christopher Wyke
Chuck DiFalco
Clem Chambers
David McAlvany
David Petch
David Rosenberg
David Tice
David Urban
Dennis van Ek
Doug Casey
Dylan Grice
Egon von Greyerz
Ernest Kepper
Frank Holmes
Gerald Celente
Graham French
Greg McCoach
Hans Goetti
Harry Schultz
Howard Katz
James Dines
James Turk
James West
Jason Hamlin
Jeff Clark
Jeff Nielson
Jeremy Charlesworth
Jim Rickards
Jim Sinclair
Jim Willie
Joe Foster
John Henderson
John Lee
Ian Williams
Joseph Russo
Larry Edelson
Laurence Hunt
Louise Yamada
Mark Leibovit
Michael Berry
Michael Yorba
Mike Maloney
Mitchell Langbert
Murray Sabrin
Myles Zyblock
Patrick Kerr
Paul Brodsky
Paul Mylchreest
Paul Tustain
Peter John Cooper
Peter Degraaf
Peter George
Peter Krauth
Przemyslaw Radomski
Rick Rule
Robert Lloyd-George
Robin Griffiths
Roger Wiegand
Roland Watson
Shamik Bhose
Shayne McGuire
Stephen Leeb
Steve Betts

About the Author: Michael Johnston

Michael Johnston is senior analyst for Fund Reference, and also serves as COO of parent company Poseidon Financial. His investment expertise has been featured in The Wall Street Journal, Barron’s, and USA Today, among other publications. He resides in Chicago.


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