Gold in the Toilet?

What “Kimye” and others are trying to tell investors

Other than the obligatory Santa sightings and last-minute retail traffic, this is typically a slow news week. So rather than drone on about some heavy investment subject, I decided to keep it light this week and report on a strange but seemingly connected series of events. If you thought those five golden rings in the 12 Days of Christmas were pretty fancy, you will really get a kick out of what people are using gold for lately.

I don’t know how I missed this, but apparently last summer Kim Kardashian and Kanye West, the king and queen of the gossip columns, spent over $750,000 on gold-plated toilets. Now, to be clear, there were four toilets, so I am assuming that by buying the first three for about $200,000 each, they were in position to cut a nice deal to knock the fourth one down to $150,000. After all, this was part of an $11mm Bel Air mansion they were decorating, so every dollar counts. And apparently, there exists on our planet a gold toilet that sells for $5mm. So let’s put Kimye’s purchase in perspective, please. And with their new baby named North West (yup, true), perhaps this was a message from the golden couple that this was a good time to be stocking up on household items containing the yellow metal, which has spent most of 2013 heading in a direction best described by chartists as “Southeast.”

Gold prices are down about 25% in 2013, and the NYSE Arca Gold Miners index (an index of Gold stocks) is down close to 50%. This, after a strong run by gold to all-time highs in 2012 which lured in would-be gold bugs and gold believers, only to see gravity take hold. Were West and Kardashian simply expressing their contrarian investing bent in “loo” of buying the physical metal? After all, if gold were to rebound toward its high in the $1,800 range, that bathroom appliance will be much more valuable, won’t it?

And if that weren’t enough in a year in which commodities were anything but golden for investors, Huffington Post and others reported in November that cleaners working on a commercial airplane in India found 24 gold bars worth more than $1 million stuffed into a toilet compartment. Now, India is one of the biggest consumers of gold in the world, but the Indian government has tried to reduce demand for gold by taxing it much more aggressively than in the past. Apparently, someone decided to respond by smuggling the gold in.

What is going on here? Is this some kind of wacky new gold standard? Or, does it simply highlight that gold is a commodity that has little value unto itself, and that its value is truly worth what someone will pay for it.

Stocks are based on a similar supply/demand tradeoff. But they are real companies with real financial statements and real humans running them. This just seems more intuitive to me than investing hoards of capital into a piece of metal.

I am not debating that gold can be a very good investment over some periods of time. But perhaps these events bear watching to see if gold regains its luster or fades down to a level that would plunge it further into the investment market’s version of the toilet. Gold is now about a break-even from four years ago and its price is sitting near a long-term “support level” price last reached over the summer of 2013. The next few months should be interesting ones, and time will tell if Kanye and Kim were really just throwing money down the…well, you know.

© Sungarden Investment Research

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