Gold in the Face of Facebook

Stocks are up today. The major indexes have jumped 1%… for no obvious reason.

There’s talk of a halo effect from the pending IPO of Facebook, which could file the paperwork as early as today.

Oy… Talk about “riding on a smile and a shoeshine,” to borrow from Death of a Salesman.

“You have 500 million people,” we wrote 13 months ago, the last time we deemed Facebook worthy of our attention, “playing Farmville and Mafia Wars and telling the world how wasted they got last night… but what makes them worth an average $100 in market value?

That was based on a presumed market cap of $50 billion.

We pose the same question today… only now, with 800 million users, and a presumed market cap that’s doubled to $100 billion, that “value” has grown to $125.

“The $10 billion IPO alone,” writes our Greg Guenthner, “easily places Facebook among the largest offerings of all time — and the biggest U.S. internet IPO by leaps and bounds.

“For some perspective, Google’s 2004 IPO netted the search engine (and now-Facebook rival) what now seems like a paltry $1.2 billion.”

For further perspective, consider the biggest U.S. company by market cap is Apple — valued at $425 billion, according to the latest figures from FactSet. Number two is Exxon Mobil at $403 billion.

Apple produces computers, phones — tangible stuff. Exxon Mobil produces oil, natural gas — tangible stuff.

Facebook produces… eyeballs to deliver to advertisers.

And coming out of the gate it will be valued at nearly 25% of the nation’s biggest companies with decades, if not a century, of track record.

The giddy reaction makes us long for some of the most tangible stuff of all this morning. And we’re evidently not alone…

The owner of the world’s 16th largest gold reserve has finished up the process of repatriating its overseas holdings. The final shipment of Venezuela’s gold bars arrived at the Caracas airport Monday.

Its transport to the central bank was the occasion for a motorcade broadcast on state TV. “In two months, we’ve brought 160 tons of gold valued at around $9 billion back to Venezuela,” said central bank chief Nelson Merentes.

President Hugo Chavez ordered the operation last August, cleaning out its vaults at the Bank of England and J.P. Morgan Chase, among others, as a precaution against turmoil in the financial markets. “The repatriation of our gold was an act of financial prudence and sovereignty,” Merentes said.

Meanwhile, the owner of the world’s 8th largest reserve is beefing up its holdings.

Iran’s gold reserves now total 907 metric tons, according to a Tehran Times report citing Yahya Ale-Eshagh, who heads the Tehran Chamber of Commerce, Industries and Mines.

The average purchase price, he says: $600 an ounce. At current prices, Iran’s gold is just under 10% of its total foreign exchange reserves.

“We don’t have any shortage of foreign currency or gold to meet the local demand,” Mr. Ale-Eshagh said. Music to the ears of President Ahmadinejad, we presume…

Mahmoud Ahmadinejad and Hugo Chavez
They might be idiots, but they’re no fools…

Ordinary Chinese couldn’t get enough gold for the Lunar New Year. Sales volume at Beijing’s biggest gold markets — Caibai and Guohua — totaled $95.3 million.

That’s nearly 50% more than the year before, according to the Beijing Municipal Commission of Commerce.

We were at Caibai last May. The place was mobbed… early on a Tuesday morning.

And now? “You can hardly even see the gold bars, necklaces and pendants in the display case,” said one shopper looking for gold bracelets for his granddaughter. “You have to quickly decide whether to make a purchase, or it will be taken away by others,” he told China Daily.

Chinese Gold Retailer
They’re no fools either…

“Gold is no longer owned only by a privileged few,” according to Caibai assistant manager Guan Qiang, “ but has become a new investment channel open to all.”

In fairness, some Americans seem to recognize gold’s value: In fact, it’s flying out the door of the U.S. Mint.

The Mint sold 127,000 ounces of Gold Eagles in January. That’s the highest monthly total in a year… although no doubt sales were goosed by the availability of fractional sizes, which ran out at the end of last year.

Silver Eagle sales totaled 6,107,000 — the second-highest month on record after January 2011.

Heck, even Pimco chief Bill Gross is coming around to gold. “Recent central bank behavior, including that of the U.S. Fed,” he writes in his latest monthly missive, “provides assurances that short and intermediate yields will not change, and therefore bond prices are not likely threatened on the downside.”

“Still, zero-bound money may kill as opposed to create credit. Developed economies where these low yields reside may suffer accordingly. It may as well, induce inflationary distortions that give a rise to commodities and gold as store of value alternatives when there is little value left in paper.”

Welcome to the club, Bill.

Addison Wiggin
for The Daily Reckoning

The Daily Reckoning