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Individual ownership of physical gold is
a most enlightened manifestation of the pursuit of happiness. Gold
acquired with after-tax income is a personal, political, and even spiritual
achievement. Holding physical gold in ones
hand is as precious as a new grandparent holding their newborn grandchild,
the hand of a high school sweetheart, or clasping one’s own hands in
thankfulness of not getting what one may deserve. In short, ownership
of physical gold may be, in the moment, appreciated for its beauty and
meaning, tangible evidence of the enjoyment of free will, and an indicator or
measurement of lifetime achievement.
Frederic Bastiat
wrote eloquently on the subject of life, liberty and property in The Law.
Bastiat opined in the mid nineteenth century,
ahead of Marx’s Communist Manifesto, but soon enough following
the American and French revolutions, to ascertain the differences in the laboratory
of human experience. The Law detailed the moderating affects of bottom-up or individual liberty over the
violent top-down social justice and promise of collective salvation.
Simply put, Bastiat believed all could agree that
people are entitled to the right to live, the right to pursue life as they
choose, and the right to reap the outcome of their actions, both good and
bad. In our opinion, the ownership of physical gold is the ultimate
test of Bastiat’s exercise of inalienable
rights.
Bastiat’s outside-the-box
assessment of the mid-nineteenth century was not without criticisms of early
America, namely human slavery and tariffs, restricting the right to life,
liberty and property. Notwithstanding these criticisms, he lauded the
achievements of early America, as did Alexis de Tocqueville, a land of
liberty to be held up as a standard of moderation and happiness.
Bastiat argued that
a just government would enact and enforce laws to protect these basic rights
of the individual, and offer protection from those that would seek to
terminate life, enslave, or steal property. Governments that do not
protect these rights, even popularly elected under the guise of charity,
participate in a form of legal plunder, in our opinion sowing the seeds of
moral hazard. Taxing or outright theft of gold from individuals by
kings or popularly elected governments have been the means by which the
narcissistic elite have maintained and financed control of their countrymen
and others.
We believe that the upward march of civilization
can be measured by the increasing ownership of physical gold by individuals,
evidence of freer and more egalitarian societies. While some
totalitarian regimes (Roosevelt’s confiscation of gold included as a
brazen example of legal plunder) sought to deny individual ownership, the
progress of liberalizing societies is distinguished by individual ownership
of gold; free, unfettered and unsubsidized.
Gold a Standard of Value for All Time:
In Gold We Trust
Some say it is absurd to expend excessive
amounts of capital and effort to take gold out of the ground and to place it
in a vault (or hide it under a mattress or bury it in your back yard).
Truth be known, like defining happiness, “it ain’t nobody’s business but their
own.” These critics are typically the very same elites that
regularly hold others achievements in low regard. They seek to separate
the results of the fruit of the labors of both the rich and poor in ordering
their version of a “fair” or “socially just”
society. John Lennon was right, this is not hard to Imagine, it’s easy if you try.
Consider gold as a measure of value
against the increase in food-stamp recipients, increasing 50% during the Bush
administration, and from 26 million in 2007 to 44 million today. This
issuing of script having the full faith of the U.S. government has increased
from $33 billion in 2007 to over $77 billion. The system is susceptible
to fraud with only 40 inspectors overseeing about 200,000 merchants.
The benefit cards have become de facto
currency with trading exchanges on Facebook and Craigslist. These solid
citizens of the republic, in common with the űber
rich in assets, pay little or no personal taxes on taxable income.
Ironically, this weapon of the war on poverty has been turned on itself, as
it robs both recipients and donors of productivity, good health, and virtue,
all important elements of happiness recognized by Benjamin Franklin.
H.L. Mencken said the New Deal divided America into “those who
work for a living and those who vote for a living.”
We would argue that in the
liberalization of societies, physical ownership of gold is now even more
precious than the right to vote. Prosecuting voter fraud and border
protection hardly reflects the value or integrity of the hard-fought-for
universal suffrage. If not printing ballots or food stamps, the
printing of currency, backed only by the promise of a government, to pay
above-market salaries, subsidize careers and buy votes through entitlements,
enslaves the population.
Individual ownership of gold, the purest
form in which an individual may choose an altogether unique course, opposed
to state control and direction, is essential for achieving personal
happiness. It is obvious that gold, in its recognized rarity and
purity, has allowed it to maintain its position as a trusted store of value
over the eons. Modern liberal governments are acting like ancient Rome,
guilty of balancing its books by increasing the base metal content of silver
coins over its final centuries, yet gold remains a trusted store of value.
Newsflash! Bernanke Conference Call,
Meets Own Expectations
We are now approaching the centennial of
the founding of the Federal Reserve System. Ostensibly, the Federal
Reserve was developed in the years following the Panic of 1907 to avoid
relying on the goodwill of a single individual, J. P. Morgan, to ensure the
health of the national economy. The primary function of the Federal
Reserve was to provide an elastic currency, to mitigate shocks to the system
(the San Francisco earthquake of 1906) to seasonal expansions and
contractions to the money supply under a gold standard. Mission creep
of the Federal Reserve over the last century has stretched beyond
recognition, much like the growth of federalism under abuse of the commerce
clause of the U.S. Constitution. The dual role for the Federal Reserve,
which became law under Humphrey-Hawkins, for maintaining a stable currency
and full employment, is now achieving neither.
A preservation of the status quo in a
watered down period of stagflation appears acceptable given the June 22, 2011
press conference conducted by Federal Reserve Chair Ben Bernanke. We
noted that he is no longer concerned about deflation and additional
quantitative easing through purchases of U.S. Treasuries is no longer
imminent. Interestingly, he stopped short of making confident or clear
statements, regarding his timing to reduce their holdings of U.S.
securities. The tenor of communication was “mission
accomplished,” turning responsibility for recovery over to an amorphous
economy and political class, and washing his hands of the financial
crisis. Reduced expectations for a third quantitative easing program
lowered inflation perceptions and took gold prices lower.
While Federal Reserve Chairman Bernanke
noted little direct exposure to the Greek financial situation, he was
altogether too brief on his quantification of risk to the U.S. with exposure
to European banks. This combined with his belief that reducing the
deficit was something that could be pushed off for later decades. The
limitation of his visibility was reminiscent of pre-financial crisis
ambivalence toward an apocalyptic shadow banking system. Concerns about
the systematic risk of a contraction in European write-downs have already
been priced into stock prices, and potential extensions of debt with improved
attempts at austerity have weakened both the U.S. Dollar relative to the Euro
and demand for gold as a safe haven asset.
G*d D*#m the Pusher Man
The end of a three year binge of loose
monetary policy feels more like a hangover compared to the clarity of a
healthy growing economy. While the Federal Reserve purchase of
Treasuries increased liquidity, it also financed an addiction to government
spending, adding about four trillion dollars in federal debt. In
effect, in the words of William McChesney Martin,
Jr., the ninth Chairman of the Federal Reserve System, the job of the Federal
Reserve was "to take away the punch bowl just as the party gets
going." Shockingly, the Federal Reserve has hosted the party and
replaced the bowl with a bottomless trough.
Bernanke was only a dealer feeding the
addiction of deficit spending. The pushers of debt are the lobbyists
and politicians who politically engineered perceptions of protection,
benefits and entitlements. The tax code itself is a complex labyrinth
of deeply entrenched deductions reinforcing the addiction. Over seventy
years of good intentions have weeded out individual responsibility and
happiness, and substituted public careerism for public service. These
monsters developed moral hazard to such a degree, that moral hazard itself is
now “Too Big to Fail.”
As Greece and other PIIGS nations are
subject to the European Union, so the U.S. will be subject to Chinese and
other global investors who trusted the U.S. Dollar as the reserve
currency. Should growth slow in China, or defaults lead to increased
demand for liquidity in Europe, either shocking the system, the dealer will
be counted on to feed the addiction the pusher will be more than happy to provide.
One flashes back to the cult film Easy Rider, with Peter Fonda and Dennis
Hopper, setting out on their journey to Steppenwolf’s version of Hoyt
Axton’s, The Pusher: “G*d D*#m, G*d D*#m, G*d D*#m, the Pusher
Man.” With the endgame for lascivious fiscal and monetary policy
in full view, individual physical ownership of gold provides a tangible
separation of modern and classic liberalism.
Reiterate Gold Forecast for 2011 and the
Pursuit of Happiness
We forecast gold prices in 2011 to range
between $1300 and $1500 per ounce with the potential to reach $1600 by the
end of the year with some catalyst. While the price history for gold so
far in 2011 suggests we were conservative, a late season correction in gold
may be imminent. We remain confident in our assessment for the year and
anticipate seasonal influences to move gold prices higher toward year
end.
It is interesting that investors are
nearly indifferent to mining stocks relative to the enthusiasm just a few
short years ago when gold was half the price. It feels much like the
fall of 2008 when companies meeting guidance received little credit in the
market. Investors that held through the crisis or were buyers in the
first quarter of 2009 participated in one on the best buying opportunities of
a lifetime. Should risk aversion carry from summer into the fall
season, we anticipate low stock prices may lead to acquisitions by majors or
buying by the Chinese or other non-traditional buyers working to build
product pipelines, generating a strong finish to the end of 2011 for mining
stocks.
We believe that emerging producers,
purchased at discounts to production, with increasing potential for cash flow
generation may be the most attractive. There should also be a good
opportunity for selective acquisition of exploration and advanced development
companies. There may be good opportunity to buy production or
exploration ounces at a discount. Should confidence return to the
markets, and should inflation become a concern, this strategy may prevail in
achieving above average returns.
For individuals looking for preservation
of value and the happiness coming from exercising their own free will with
confidence and joy, physical ownership of gold in this age is
priceless. We believe ownership of physical gold may provide a return
over and above that which can be counted in financial rates of return.
The acquisition of physical gold that comes through liberty, making possible
the opportunity to do good to oneself and others, is
physical evidence of a life worth living in the pursuit of happiness.
Mike Niehuser
Beacon Rock Research.com
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