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As an asset class, gold stirs the passions. Some
folks love it, and others despise it. Be wary of those who will never own
gold.
As I write this note to you on Friday, fingers
flying over keys like the flickering quotes on my screens, Pink Floyd's
"Learning to Fly" is playing on my speakers.
It's an appropriate tune, because gold is once again
"learning to fly" now. After one or two scrapped take-off attempts,
the yellow precious metal has broken out to fresh all-time highs. (Well... nominal
highs at least. To break inflation-adjusted highs – which
will happen sooner or later – gold will have to trade above $2,000 per
ounce.)
Your humble editor has spilled a fair amount of ink
(pixels?) on gold these past few years. Here are a few examples:
·
Why the IMF and Fort Knox
Won't Put the Hurt on Gold
·
The Best Trader in the World
Is Wildly Bullish on Gold
·
Is Gold on "Deflationary
Death Watch"?
·
Gold Goes Parabolic as Faith
in the System Erodes
The argument for gold is nuanced, powerful and
compelling. You will find various elements of it in the archives above
(should you care to look).
At heart, though, the case for gold is simple. After
a quarter-century of fiscal irresponsibility, we have spent all we have...
and spent yet more on top of that. Now the credit lines are nearly tapped out.
Against such a backdrop, in which debt levels remain
high and growth remains stubbornly low, there is little for desperate
politicians to do but print, print, print... and the only "neutral
currency" not subject to the ravages of a printing press is gold.
If you've been a Taipan reader for any length of
time, you already have a fair grasp of the facts. You have probably also
realized how far we are from the financial mainstream. Taipan
Daily is willing to
put things bluntly when others will not... to "tell it like it is,"
or at least tell it like we see it (with you being the final judge).
And so, with that in mind, a quiet suggestion: If they don't own gold, don't trust their opinion on
gold.
Pomp and
Nonsense
Why does this need to be said? Because gold is an
emotional precious metal. As an asset class, it stirs the passions. Some
folks love gold, and others irrationally despise it. Either way, investing
and trading decisions tinged with emotion are not to be trusted.
As gold has marched steadily higher, an amazing
amount of hand-waving and pooh-poohing has taken place... most of it from
individuals who have never owned gold in their lives and likely never will.
(If gold is too high priced for these dismissive
souls now, at a measly twelve hundred bucks and change, how on earth will
they bring themselves to buy in at $2,000... or $4,000... or higher still?)
In many ways, gold is despised because its
ascendancy is an affront to an established way of life. A rising gold price
means the system is not working. It means the old "buy the dips"
mentality, in which the same old fiscal fixes continue to work, has gone by
the wayside. Relentlessly rising gold means the easy way of life established
these past 25 years – a "simpler time" that many money
managers wish they could return to – has gone the way of the dodo.
So we hear over and over how gold is a
"barbarous relic." (Funny – no one calls the Federal Reserve
system a relic, though they've been consistently screwing things up since
1913.)
We also hear from sour-grapes types and knee-jerk
attention seekers that gold is just a fad... that the infatuation will die
down any time now.
But these viewpoints are rooted in emotion, not
facts. The newspaper columnist who turns his nose up at gold is not merely
dismissing an asset class. He is expressing discomfort at the pressing onset
of a strange reality he does not understand.
Meanwhile, the market "contrarians" who
bellow about gold going lower – even as it marches ever higher on
daily, weekly and monthly charts – are merely grasping for straws of
attention, trying to restore old guru glories lost.
A Cheap
Insurance Policy
There is something else important the naysayers and
doubters fail to understand: Gold is a low-cost insurance
policy.
Ask yourself the following. How much faith do you
have in the Federal Reserve? How about the Bank of England
(BOE), the European Central Bank (ECB), or the Bank of Japan
(BOJ)?
Our financial and political leaders have not just
performed poorly in a time of serious crisis, they have performed
spectacularly badly. These past few years have been the fiscal version of the
BP oil spill. Who is to say the powers that be won't bungle things worse
– much, much worse – when the full-blown "Act II" of
the global financial crisis hits with full force?
Against the backdrop of breathtaking financial,
social and geopolitical risks the whole world faces now, the truly crazy
stance (in your humble editor's opinion) is not owning gold. Those who blithely
assume everything will work out are like Florida beachfront property owners,
happy to forego insurance as the hurricane bears down.
Last Train
The other open question in respect to gold is one of
supply and demand. Some feel there is more than enough gold to go round at
current levels. How can gold be worth such an exorbitant price, these critics
whine, when all it does is sit there?
Others, like credit and debt strategist David P. Goldman, take a different view:
What's the price of the last ticket on the last
train out of Paris on the night the Germans march in? Whoever is carrying the
most cash will get it, and that will be the price.
...Central banks alone own about 4.8 million tons of
gold. The world produces about 2,200 tons. Suppose that central banks wished
to increase their gold holdings by 1 percent. That's 48,000 tons or so, or
more than 20 times annual mining production.
What's the price elasticity on that sort of thing?
How badly do you need that ticket out of Paris?
Speaking of central banks... "Last year,
foreign central banks were net buyers of gold for the first time since
1997," CNN reports. "India, China and Russia have been the biggest
buyers. And more recently, the Philippines and Kazakhstan jumped into the
fray with big purchases of the precious metal during the first quarter..."
There are at least three different motives for
owning gold – as speculation, as investment and as long-term insurance
policy. Speculation is the motive most sensitive to price changes, insurance
the least.
Whatever your motives and methods, your humble
editor would advise considering gold not just as a standalone asset, but in
the context of other potentially risky assets you own... like the fiat
currency-denominated cash in your portfolio, for example.
And when seeking opinions on what gold means and
where gold is going, be wary of those who don't own it (and who never will).
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www.taipanpublishinggroup.com
Justice Litle
Taipan Publishing Group
Justice Litle is the Editorial Director of Taipan Publishing Group
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