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I Was Wrong About Gold and Internet Stocks and Real Estate


Gold is still going strong at this point, but no one can know where it will be in just a month. But it's possible we're seeing a run up of prices now, the same things happened in the '80s before gold lost 35%.

This article published with permission from

In the summer of 1999, I warned my friends that they were playing with fire, that the rip-snorting bull market in Internet and technology stocks was likely to end badly.

Most of them scoffed

and were glad they did. After all, Internet stocks weren’t anywhere near a peak in the summer of 1999. I was early. It would be nine long months before the scaffolding began to shake.

I never dreamed the mania could go for so long, but it did. And it taught me a valuable lesson. You can’t make a rational estimate of when irrational behavior will end.

The same thing happened with the housing bubble seven years ago. Almost no one was buying my skeptical take. I talked to realtors who had been in the business their whole lives and had never witnessed anything like the dramatic run-up in prices that was occurring. Yet most managed to convince themselves

and their clients

that prices would only keep rising, which they did. Until, of course, they didn’t.

Now we’re in the midst of a spectacular run in gold and silver. When I bump into typical investors at cocktail parties or backyard barbecues, they invariably tell me they are loading up on precious metals. “It’s a no-brainer,” a Merrill Lynch broker told me just last night.

I agree. I think some investors have left their brains with the hat-check girl. Here’s why:

  • The price of gold and silver are now way above the marginal cost of production. When that happens, you get new supply. Yes, it takes time but trust me it’s coming. (High commodity prices always sow the seeds of their own destruction. Have you checked out agricultural prices lately?)
  • Unlike oil, a depleting asset, all the gold and silver ever mined is still around and is available to be sold. If consumers rush to cash in on higher prices or (ahem) falling prices supply can quickly swamp demand.
  • Higher inflation does not necessarily portend higher prices for precious metals. Gold hit $850 an ounce in January 1980. Although inflation hit 12.4% that year, the yellow metal was $300 an ounce lower in December. That was a 35% hit. And yet that was just the beginning of the end. Gold didn’t bottom out until almost 20 years later. Silver took an even more spectacular ride, hitting a high of $48 an ounce in 1980 and losing 90% of its value by 1982.
  • Or take a look at gold equities. While the price of the barbarous relic keeps rising, you’ll notice the gold stock index is no longer tagging along. Here’s the chart. Gold has pushed ahead over the last three months. But blue chip gold stocks have fallen, even though most of the big producers have removed their hedges. The smart money is betting that today’s high prices won’t be sustained.
  • And how about the smartest money of all? Warren Buffett isn’t buying any nonsense about gold being “undervalued” at current levels. He openly scoffed at the idea in this April clip. And gold is only more expensive now.

Some readers might remind me (and should) that I was bearish on gold

several months ago. Yet gold and silver have only pushed on to higher highs. Just as Internet stocks did. Just as residential real estate did. Just as tulip bulbs did.

Don’t get me wrong. Everyone should own some gold as a hedge against economic or political catastrophe. But if you are piling into gold and silver now

or if it makes up a quarter or more of your portfolio

you are truly living in Las Vegas.

I could be wrong, of course. Maybe gold and silver are still in the early stages of a tremendous run-up. But what if I’m not wrong? A 60-year-old who jumped into gold in 1980 was down more than 60% on his 80 birthday, if he lived that long. And that’s ignoring inflation, something gold bulls are not traditionally inclined to do.

The truth is no one can tell you where gold will be in a month or a year. Still, it wouldn’t hurt to heed the words of Mark Twain:

“History may not repeat itself. But it rhymes.”

Alexander Green is the chief investment strategist at

. See more articles by Alexander here


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