As expected, I caught some flak from a few readers of my column two weeks ago, A Trillion Reasons to Buy Gold Now. Most, I’m happy to report, agreed with what I said. A few even had some dandy suggestions to add, such as the alert reader who strongly advised buying equal amounts of two metals — lead and gold. If you missed that column and the resulting comments, click here to see them.
Gold’s recent explosion in price — up almost 400 percent during the current bull market, far outdistancing almost every stock or bond — is really the story of what our government has done to our money. There is only one way to measure what a dollar is worth; that is by what it will buy. When measured against a basket of goods that you and I need to survive, the “value” of the dollar — that is, what it will purchase — has been plummeting like a rock dropped out of a skyscraper window.
It’s easy to understand why. Keep making more of anything and the price of each one will drop. Create several trillion more dollars, to finance all sorts of government spending schemes, and Economics 101 teaches that the value — that is, the purchasing power — of each individual dollar must fall.
Of course, this harsh reality drives our liberal brethren crazy. They want to believe that government is the solution to all of mankind’s problems. They want you to believe that rising prices are caused by greedy capitalists, not by their profligate spending. And worst of all, they genuinely believe they have a God-given right to take money from you and give it to those who deserve it more.
Well, scratch part of that statement; most of them don’t believe in God, much less that He has anything to do with granting us rights. But I’ll stand by the rest of that statement.
Of all the reasons my critics gave for not buying gold now, there is one I want to address today. That is the argument that gold has already gone so high it is bound to come crashing down. “It’s a mania, folks!” some critics insist.
What we’re seeing is a lot of things, ladies and gentlemen. But one thing it’s not is a mania. Unless someone tells Ben Bernanke to turn off the printing presses, I firmly believe that we will see a mania in the price of gold and silver. But we’re not anywhere near that point today. When that day arrives, you’ll want to sell your precious metals to the people who are clamoring to buy them. For now, keep accumulating more. When the mania arrives, you’ll be glad you did.
How will you know when the time to sell is here? In a recent column Jeff Clark, the highly regarded senior editor of the Casey Research publication Big Gold, told us what it would look like. Permit me to quote him at length:
You log on to your brokerage account for the third time that day and see your precious metal portfolio has doubled from last week. Gold and silver stocks have been screaming upward for weeks. Everyone around you is panicking from runaway inflation and desperate to get their hands on any form of gold or silver. It’s exhilarating and frightening in the same breath. Welcome to the mania.
Daily gains of 20% in gold and silver producers have become common, even expected. Valuations have been thrown out the window. Investors clamor to buy any stock with the word “gold” in its title. Fear of being left behind is palpable.
The shares of junior exploration companies have gone ballistic. They double and triple in days, then double and triple again. Many have already risen ten-fold. You have several up 10,000%. No end is in sight. Your portfolio swells bigger every day. Your life is changing right in front of your eyes.
Every business program touts the latest hot gold or silver stock. Headlines blare anything about precious metals, no matter how trivial. Weekly news magazines and talk-radio hosts dispense free stock picks. CNBC and Bloomberg battle to be first with the latest news.
Each tick in the price of gold and silver flashes on screen, and interruptions offering the latest prediction seem to happen every fifteen minutes. Entire programs are devoted to predicting the next winner. You watch to see if some of your stocks are named.
The only thing growing faster than your portfolio is the number of new “gold experts.” It’s a bull market in bull.
“It’s a bull market in bull.” Thank you, Jeff, for a wonderfully memorable expression. At first, the people who were smart enough to invest a sizeable chunk of their wealth in gold and gold-related assets, such as mining stocks, will be dazzled by how much money they’re making. But then, Jeff warns, their joy will turn to worry.
At first it was exciting, then breathtaking. Now it’s scary. You’re drowning in obscene profits but are becoming increasingly anxious about how long it can last. Worry replaces excitement. You don’t know if you should sell or hold on. Nobody knows what to do. But the next day, your portfolio screams higher and you feel overwhelmed once again.
You begin to worry about the security of your own stash of bullion — those clever hiding spots don’t feel quite as secure as you first thought they’d be. Is the bank safe deposit box really secure? Shouldn’t they hire a security guard? Should I move some of it elsewhere? Is there anywhere truly safe? You find yourself checking gun prices online.
As Jeff points out, a gold mania will only be a symptom of much more serious problems in this country:
Your wife calls and says the $100 you gave her that morning isn’t enough to buy groceries for dinner. Prices change often on everything. She urges you to get some bread and milk before the store raises the price again.
Citizens are furious with government. Agencies have been swarmed with bitter taxpayers and revolting benefit recipients. One government office was set on fire. A riot erupted in Washington, D.C. last week and martial law was temporarily declared. It’s too dangerous to travel anywhere.
As crazy as things are, it’s hard not to smile. You’re in the middle of a mania. Your life has changed permanently. You’re thankful you bought gold and silver before the mania, along with precious metal stocks.
As night settles and your house quiets, you log on to your brokerage account one last time. Even though you’re ready for it, your mouth drops when you see your account balance. It is truly overwhelming. You stare at the blinking screen, hand on the mouse, the cursor hovering on the sell button…
Is this an accurate description of what the future will look like? No one knows for sure. As Yogi Berra once remarked, the future is awfully hard to predict. But it seems to me that betting on more inflation and higher gold prices is as close to a sure thing as you’re going to see in this life.
If you need more convincing, let me suggest you order the CDs from Casey’s Gold & Resource Summit which was held earlier this month. And then listen to them. The all-star line-up included John Hathaway of Tocqueville Gold Fund, Eric Sprott of Sprott Asset Management, Richard Russell, of Dow Theory Letters, and more than two dozen others, including Jeff Clark, Doug Casey, Rick Rule and Bob Bishop.
I’m happy to report that Personal Liberty Digest has arranged a special deal on Casey’s Gold & Resource Summit CDs for Straight Talk readers. To learn about it, just click here.
Remember, knowledge is power. And it’s tax-free to boot. What’s more, the CDs should be a tax-deductible expense for you. I call that a win-win.
Until next time, keep some powder dry.
— Chip Wood