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The King IS Naked
by Professor von Braun

May 22nd, 2000

The hi-tech internet boom that took the Nasdaq to record levels earlier this year (and helped the Nikkei to recover for a while) is now beginning to be seen for what it was - "much ado about nothing". Certainly it is unlikely that the 5000 level will be seen again for some time.

The rally contained all the elements of a speculative blow off top. Surging share prices, companies with no profits, business models that could be duplicated by anyone, dubious cash flows, ridiculous valuations and little chance of economic survival.

Now it is being seen for what it is. A market phenomenon that has no substance, in short the King is naked. That's naked as in no clothes whatsoever. Regardless of the CNBC spin, of "brain dead" analysts buy recommendations, of Wall Street hype, the often touted "new" economy substance is simply not there.

What is a tad amusing is the news out of the UK that an online e-tailer called has closed shop and called in the receivers. Can you imagine any one calling a business "". I guess it got booed. Too many boo's, not enough customers. Perhaps it should have been called "" and if it could have figured out how to dispense liquor over the internet it may have had a chance of surviving.

How do you explain to your wife that the money you "invested" (one has to use that term loosely) in "" is gone? Booed out of existence by a lack other investors. Oh well!

Meanwhile back in the land of delusions, one has to ask what other online businesses are facing the same fate? Rest assured "" will not be the last failure in wonderland. More will follow as the growing awareness that the king is naked begins to spread, despite what Maria the Bartiroma and her highly paid associates have to say. Buy the dips? I think not. Sell the rallies might be a much safer strategy as the "who's next" game begins to gain momentum.

Also in the news this week was reports of lay-offs and redundancies in the internet world. How do you become redundant after six months on the job? What has changed? What about my stock options? One can imagine the hype that was used as new employees were no doubt promised that the dot coms were going to take over the world. "We are the fastest growing businesses in the world today, this is the place to be, stock options will make you rich, etc, etc". Then six months later you are redundant? No job, no options, in debt and maxed out on your credit cards. Boo!

Speculative blow offs, historically, do not end well. The participants tend to suffer from a shortage of shirts, a change in lifestyle and the new BMW suddenly becomes a 1989 Toyota.. The participants end up working in the service industry, waiting on tables, washing dishes and their cell phones no longer work. Often they change neighborhoods as well, having suddenly developed a preference for a less affluent area. Some even resort to residing at the family home, moving back in with Mom.

Meanwhile, back in the forgotten land of alternative investments, the precious metals market, not much happened there. No reported "boo.coms" there, even though the BOE sale is set for next week. The Swiss have been remarkably quiet, as has the gold market. So far the proposed sale of Swiss gold either has not actually happened, or if it has, it has been well absorbed by the market. That would be nice.

Is this market setting itself up for a rally? Trading in the $275 - $290 range can't continue forever. A break out appears possible here, with the odds favoring the upside as the volatility in both the currency and stock markets continues. However should gold rally one would need to keep an close eye on the mining companies. A rising gold price will cause problems for miners with large hedge books. Rising fuel prices will cause problems for those that are not hedged.

Now if Newmont had purchased it's diesel fuel from "", the e-tailer then perhaps could have survived. Or the Swiss could have done the decent thing and sold their gold at "'s" website, along with a selection of perfumes, cheese and chocolates.

While the bulls and the bears continue to activate strategies that reflect their various positions, whether it's "buy the dips" or short the dot coms, the individual investor has, as an option, the ability to go neutral and buy physical gold. The advantage of doing this is that you remove yourself from the market volatility that is currently present. It is impossible not to place your accumulated wealth at risk. Risk is always present. However buying physical metal at these levels is about as close to becoming neutral as one can get. Gold has no other liability attached to it, its value is in what it is and it does not have to be watched every day to see if it's grown.

Neutrality and gold go together, a fact that the Swiss now seem to have forgotten. Playing the currency and stock markets requires you to use a liability to play. Whether it's the US $, the Euro, (how low can a Euro go?), the Japanese yen, the NZ $, (now at a 15 year low against the US $) or whatever. These funny pieces of paper do tend to lose their value on occasion and given the size of the derivatives market, believed to be in excess of 88 trillion $'s, who knows what impending disaster resides in some far away tax haven, waiting to appear. Such an appearance could occur faster than the latest computer virus.

Owning physical metal at these price levels, even though downside potential remains, certainly looks attractive. Continuing to hold liabilities that have untold paper contracts, that are not understood when it comes to assessing the risk, attached to them may be on a par to downloading the "Love Bug" virus.

The Prof can be contacted by email at

Copyright by Professor von Braun. All Rights Reserved. Reprinted at USAGOLD by permission.

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The Rocket School of Economics -- The Lecture Series Index

  • 22 May 2009 -- An Often Overlooked Issue!
  • 28 Mar 2009 -- Problematic Banking Systems!
  • 14 Nov 2008 -- What Exactly is an Asset?
  • 23 Aug 2008 -- Through the Looking Glass?
  • 02 Aug 2008 -- Compounding to the Downside!
  • 26 May 2008 -- Back to Basics Again!
  • 31 Mar 2008 -- The Broken Watch -- Part 2.
  • 27 Mar 2008 -- The Broken Watch -- Part 1.
  • 06 Feb 2008 -- The Financial Equivalent of Faulty Towers.
  • 10 Dec 2007 -- Monetary Systems & Productive Assets.
  • 14 Feb 2007 -- Divorced from Reality
  • 06 Sep 2006 -- Gold, Bankers, the Trade Deficit and Unsettled Transactions
  • 19 Jun 2006 -- When is a Reserve Not a Reserve?
  • 31 May 2006 -- The significance of August 15, 1971.
  • 08 Apr 2006 -- Keep Your Eye on the Ball!
  • 30 Mar 2006 -- What came first?
  • 11 Mar 2006 -- An Unanswered Question.
  • 08 Jan 2006 -- Where have all the projects gone!
  • 11 Dec 2005 -- Gorillas, Rising Gold Prices and Depreciating Paper Currencies!
  • 23 Oct 2005 -- Custodial Risk.
  • 16 Sep 2005 -- An Inherent Flaw.
  • 08 Aug 2005 -- Central Banks and 'Reserves'.
  • 31 Jul 2005 -- Central Bankers, Actors and 'We'.
  • 17 Jul 2005 -- Unintended Consequences! -- Part 3.
  • 07 Jul 2005 -- Unintended Consequences! -- Part 2.
  • 25 Jun 2005 -- Unintended Consequences! -- Part 1.
  • 14 Jun 2005 -- The Two Greater Fools Theory.
  • 03 Jun 2005 -- Real Money, Funny Money and YOU -- Part 4.
  • 30 May 2005 -- Real Money, Funny Money and YOU -- Part 3.
  • 26 May 2005 -- Real Money, Funny Money and YOU -- Part 2.
  • 21 May 2005 -- Real Money, Funny Money and YOU -- Part 1.
  • 09 Nov 2002 -- Carrying a Big Stick.
  • 17 Sep 2002 -- Wishful Thinking!
  • 27 Jul 2002 -- Gold Bugs Beware -- part 2.
  • 10 Jun 2002 -- Gold Bugs Beware!
  • 06 Apr 2002 -- Currencies versus Gold.
  • 26 Jan 2002 -- Bear Market Strategies.
  • 01 Jan 2002 -- 2002 -- A Perspective.
  • 20 Oct 2001 -- The Storm Clouds are Gathering.
  • 30 Sep 2001 -- What to Say?
  • 01 Jul 2001 -- ...Said the Fly to the Spider.
  • 14 Jun 2001 -- Upward and Downward!
  • 28 May 2001 -- Volatility Time, Again!
  • 14 May 2001 -- The Coming Bull Market in Gold Stocks?
  • 24 Feb 2001 -- High Hopes, Wishful Thinking & The Absurd
  • 20 Feb 2001 -- Who Put the Holes in the Swiss Cheese?
  • 22 Jan 2001 -- US Dollar Admits Identity Crisis!
  • 16 Jan 2001 -- Dear George W.
  • 24 Nov 2000 -- The Bubble Has Burst
  • 11 Nov 2000 -- The Media, Bull Markets & the Gold Price
  • 02 Nov 2000 -- Gold Stocks
  • 29 Oct 2000 -- Oh The Tangled Web We Weave ...When We Set Out to Deceive
  • 24 Oct 2000 -- A Mystery!
  • 16 Oct 2000 -- A Peso Here ...and a Few Thousand Pesos There
  • 10 Oct 2000 -- The Unfolding
  • 30 Sep 2000 -- What's Wrong with THIS Picture?
  • 25 Sep 2000 -- Buy Gold Now!!
  • 23 Sep 2000 -- The Times, They Are a' Changing
  • 15 Sep 2000 -- Time WILL Tell!
  • 27 Aug 2000 -- SS "Paper Assets" Begins to Take on Water
  • 06 Aug 2000 -- The Indian Summer
  • 26 Jun 2000 -- A Yellow Brick Wall
  • 22 May 2000 -- The King IS Naked
  • 30 Apr 2000 -- Goodbye Yellow Brick Road
  • 18 Apr 2000 -- Beware the Ides of March, April and May
  • 08 Apr 2000 -- Really, Sir Aldot!
  • 25 Mar 2000 -- Where To From Here?
  • 18 Mar 2000 -- The Gnomes of Zurich
  • 12 Mar 2000 -- The "New" Economy??
  • 06 Mar 2000 -- Two Questions
  • 04 Mar 2000 -- Iceberg Dead Ahead!
  • 28 Feb 2000 -- The Wizard of Oz
  • 06 Feb 2000 -- Here We Go Again!!
  • 15 Jan 2000 -- Comments on the Gold Market
  • 29 Dec 1999 -- No Raw Ingredients Required
  • 28 Dec 1999 -- No Way Out
  • 14 Dec 1999 -- Ho, Ho, Ho!
  • 07 Dec 1999 -- Greenspan's Bubble
  • 03 Dec 1999 -- Early Warning Signs

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