Gold prices have fallen to their lowest levels since March 2009, prompting some experts to see parallels with the likes of Apple Inc. (NASDAQ:AAPL) and Facebook Inc (NASDAQ:FB) and others to see buying opportunities to be had.
The Financial Times published a blog written by Pimco CEO Mohamed El-Erian, who says people need to quiet down and listen to what gold prices have to tell them. He focused on how important it is to look at a company’s valuation and the problems that can occur when the valuation becomes totally disconnected from the underlying products or services offered by the company.
Since the financial crisis, Warren Buffett's Berkshire Hathaway has had significant exposure to financial stocks in its portfolio. Q1 2021 hedge fund letters, conferences and more At the end of March this year, Bank of America accounted for nearly 15% of the conglomerate's vast equity portfolio. Until very recently, Wells Fargo was also a prominent Read More
In the cases of Apple Inc. (NASDAQ:AAPL) and gold, he noted specifically that investors continued to pour more and more money in because they were considered to be safe investments. And in Facebook’s case, it was all about the hype leading up to the company’s initial public offering. But then, “an otherwise insignificant bit of news pulled the rug from under” it all, toppling investors who still had their money in.
The Case Of The Falling Gold Prices
For gold, El-Erian said the catalyst for the dramatic fall in prices was a rumor that Cyprus might have to sell holdings by its European partners. Investors should keep in mind that at the time, this was relatively a small amount of gold that was worth less than $1 billion when the rumor surfaced.
However, investors suddenly began to believe that a lot of gold would go on the market from a number of European countries. He said that belief pushed gold prices down 15 percent in less than a week, and they haven’t recovered yet.
The Parallel With Apple Inc. (AAPL)
Then he went on to explain how both Apple Inc. (NASDAQ:AAPL) shares and Facebook Inc (NASDAQ:FB) shares saw something similar happened. Apple’s stock shot up to $705 per share in September, but it dropped below $400 per share within the last few months.
He said the problem is that the Apple brand disconnected the company’s valuation from the reality of a basic fact: Apple’s competitors are beginning to catch up.
Facebook Inc (FB) Comparison
And of course when Facebook Inc (NASDAQ:FB) went public one year ago, virtually everyone knew the company, and its IPO was hyped up. All the hype pushed the social network’s IPO up to $38 per share, increasing slightly before falling under $20 per share as investors began to realize just how disconnected the company’s valuation was from its fundamentals.