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It is
obvious that during the summer of 2011, as the European debt situation unravels,
the solvency of the United States is questioned and inflated economies the
world over show signs of deceleration, the public has taken an incremental
step toward acknowledging gold as a viable asset in a sensible portfolio.
This article will not discuss the obvious contrarian signals that are implied
by the public's entry into the realm of gold, as the barbarous relic is now
'channel busting' up, but shows no signs of waning momentum. We will just
warn that at some point, momentum always slows and the market in question,
always corrects; at some point. For reference, see silver earlier this year.
What is the 'Price' of Value?
Okay, so you are a newly minted gold bug. You understand that policy makers
are under extreme pressure to "do something!" in accordance with
the implied confidence that the public continues to show in their ability to
centrally manage economies and markets. Interest rate manipulation, currency
manipulation and a host of other tools are employed to get things on the right
track again.
The idea of gold ownership stems from the fact that the currencies of the
realm are routinely and competitively debased in the name of growth, which
the stock market demands. Unfortunately, around 10 years ago, under the
stewardship of Alan Greenspan, the idea of productive growth was abandoned in
favor inflationary growth, by policy. Enter the secular gold bull market, that is now in its 11th year.
But understand that a bull market in gold is really a bear market in paper,
or more precisely, confidence in official paper, and confidence in official
power, which has been slowly declining for years. So it is helpful to
understand concepts like 'value' and 'insurance' as opposed to 'price' and
money making 'plays'. Gold is not going to make you money. It is acting as if
it is money; the only money capable of retaining value in current
conditions. Buying it in hopes of scoring a big hit is sure to end in
heartbreak, because the buyer would not be strong enough of will and mindset
to endure what is sure to lay ahead in volatility. We are talking swings of
100's of points within days.
I was taught years ago that "gold is not about price... gold is about
value". Be measured, be balanced and don't make more of it than it
is. Gold is just a tool, an anchor to sound money; to value.
Storage
'Okay, I want to be a gold bug and I understand that I am simply insuring
myself and my family against worst case monetary scenarios. I get it, but how
do I buy the stuff and where do I put it?'
Hey, I cannot give that advice. But if it were me, I would resist the urge to
keep it at home and I might even resist the urge to keep it in country. What
I would do is get to researching the varied options pronto, because there are
many viable ones. There are also services from which you can buy bullion and
have it stored globally. These include BullionVault, GoldMoney and Perth Mint. And the first two at least, are also handy for
bullion trading and/or commerce using gold. There are many other reputable
sources out there.
But it would probably be best to resist the urge to hold up in a cabin (or
your home) with a gold, guns and ammo mentality. I personally adopted 'guns
and ammo' several years ago, but only because I was a Boy Scout and they
taught me to 'be prepared'. In this case, I want to be prepared against
social discord, or worse. I have tried to prepare in several areas, including
alternative heating, food supply... the whole schtick.
But do me a favor and keep your moorings. Wearing a tin foil hat accomplishes
nothing.
The Touts
Gold, an ancient monetary metal and store of value is and should be a
positive thing. Unfortunately, its reputation has been tarnished by a 20 year
secular bear market (ended 2000) and the associated public mentality that
went with it. Early adopters of gold in the current secular bull market were
subject to ridicule, and why not? The public has been managed by the vast
financial services industry into a mentality of something
like 'Should I have a 60% stocks, 40% bonds allocation or the other
way around?'
If this were not bad enough, all you have to do is watch or read some of the
sleazy gold ads, especially those pitching 'rare' coins or those trying to
scare you into buying. When things start going wrong in the macro, primal
instincts can rise to the surface; like survival for instance. But a knee
jerk approach seldom succeeds in the financial world.
So it is advised that you take a balanced approach and realize that buying
opportunities in the precious metals tend to be best when everybody hates
them, not loves them. So try to at least filter the touts during times of
emotion. There are reputable services and there is much reputable analysis
that explains the rational case for gold. Go find them.
Have an Overall Plan
My own father recently asked me "So Ga, how's
your gold letter going?" before he caught himself.
When I finished cringing I said "it's not a gold letter, Dad". But
there is something about the power of gold... it is more dynamic for instance
than "how's your macro fundamental and technical analysis newsletter
going?"
Today's events are not about gold. Please, if you have not done so, drop this
mentality right away. Gold is one tool for the tool box. But its historical
and religious connotations are undeniable. Yet for our purposes, we are
managing the realm of financial survival and prosperity. This is not a
Richard Burton / Elizabeth Taylor movie.
Debt is a big issue. Get rid of it if at all possible. When the system
finally belches and keels over, it is probably wise not to be tied to it with
too many obligations denominated in a failing currency. Inflationists
say 'the more debt the better, the government will just inflate it away'. But
they forget that there is the deflationary Yang in play to inflation's Yin.
Gold and debt elimination, that's a start.
How about property of value... like open space, farmland or the like, as
opposed to McMansions clustered tightly with so
many others? I know, these subdivisions can have some good cook outs, block
parties and holiday gatherings, but... How about productive enterprise?
There is a new world being formed here and I am convinced that it will be a
better one than that which is ending. It will be a painful transition, but
what will be needed going forward? That's a good question to ask. Millions of
people squatting over bags of gold and silver in cabins with rifles pointed
out the front window is not a good answer.
Gold Stocks
Let's get one thing straight right off the bat... they are not
gold. They are plays on gold, companies run by often faulty people in often
remote and threatening environments. Insofar as one speculates, they also
happen to be lining up for what I believe is an epic capital appreciation
opportunity for very rational reasons I focus on each week in the newsletter,
Notes From the Rabbit Hole
(NFTRH).
But they are not gold. They are all about price and leverage, when the time
is right. Some may wish to think about a 'play' on the currently under valued miners with a plan to cycle gains into
something of... you guessed it, value, down the road.
Summary
The mainstream media are finally on the job, scaring the $*#% out of you
about all that is wrong in the global construct. Early adopters became aware
that gold was entering a bull market many years ago. They also sought to de
leverage from the system in myriad sensible ways. Now, the enchilada is
unwinding for all to see. Gold is becoming a crowded trade that I suspect is
going to become much more crowded in the years ahead.
But volatility can visit with a simple meeting of international ministers in
high places and a resolution with some official sounding words on it. Gold is
the tattle tale that cannot resist ratting out the futility of these macro
managers. Gold is simply a store of value, and its Value Proposition has not changed in the years and centuries of ups
and downs in its nominal price. Just remember the old saw about how an ounce
of gold will always be able to buy a nice mens' suit. It still can.
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