Gold's Day In The Sun

The Daily Reckoning
Weekend Edition
August 17-18, 2002
Paris, France
by Addison Wiggin

“The dollar is an unsecured liability of the government, and the government is bankrupt,” the Daily Reckoning’s friend and contributor Doug Casey said in a USAToday cover story this Thursday. “It’s an IOU of NOTHING.”

Casey predicts: “Gold isn’t going through the roof… its going to the moon.”

Today, gold rests at $314… up from a three-year low of $256 in April 2000 but down $15 from its high this year. Mutual funds that invest in gold-mining stocks have done well this year – up 37% in the past 12 months while the S&P is down 23%.

Numbers like these have sparked a miniature gold rush this summer. “Investors,” according to USAtoday, “have poured $650 million into gold funds this year – so much that some funds, such as Vanguard Precious Metals, have closed their doors to new investors.” And the US mint sold 48,000 gold Eagles in July, a total of 60,500 ounces, up over 20% from last year. “I am very much of the view that the 20-year bear market in gold coincides with the 20-year bull market in the dollar,” Rick Rule, a commodities broker and long-time friend of The Daily Reckoning, told CBSMarketWatch’s Tom Calandra in an interview published on Wednesday. “Gold will come to supersede the dollar as the reserve currency of choice among central banks.”

“I am of the belief that if the dollar continues to soften and gold continues to strengthen, most central bankers, who are anti-contrarian, will go out and buy gold,” Rule said. Will central banks, long sellers of bullion as they replaced their gold reserves with paper assets, give gold its day in the sun?

We’ll see, dear reader, but for the time being it’s seems rather unlikely. In fact, much of the financial press seems to believe central banks around the world are said to be eyeing gold’s 10 percent rally this year as a chance to dump more of the metal. Which may, in turn, give gold bugs a chance to pick more of it up for cheap.


Addison Wiggin,
The Daily Reckoning
August 17, 2002

p.s. I was talking with Rick Rule this weekend after his speech at the Agora Wealth Sympoisum, here in San Francisco. Although he expects gold to rise on a wall of investor worry over accounting scandals, weakness in the US dollar and a decreasing desire for foreigners to hold dollar-based assets, he also suggested that given the widespread interest in the yellow metal – what with front page articles in USAToday featuring Doug Casey – gold may be headed for a short-term correction. In other words, be careful… and load up when you can.

p.p.s. This week’s Agora Wealth Symposium was a smooth affair… a perfect primer to the New Orleans Investment Conference. Both Tom Calandra and Rick Rule will be speaking… alongside our own Bill Bonner and Eric Fry.

p.s. As you’ll see, this week’s book of the week was reviewed by Bill Bonner in the Wednesday edition of The Daily Reckoning, see below…

* * * * The Daily Reckoning’s Book of the Week * * * *

The Skeptical Environmentalist: Measuring the Real State of the World
by Bjorn Lomborg

“Bjorn Lomborg’s good news about the environment is bad news for Green Ideologues. His richly informative, lucid book is not the place from which environmental policy decisions must be argued.

“In Fact, The Skeptical Environmentalist is the most significant work on the environment since the appearance of its polar opposite, Rachel Carson’s Silent Spring, in 1962. It’s a magnificent achievement.”

– Washington Post Book World

The Skeptical Environmentalist

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08/16/02 A FREER PLACE?
by Bill Bonner

“…In Anglo-Saxon countries, Adam Smith popularized the notion of an “invisible hand” guiding individual market transactions for the benefit of all. How come those ideas never took root inFrance?…”

by C Alexander Green

“…This is an unloved company, in a downtrodden sector, in the world’s single worst-performing major market. Most of Wall Street doesn’t cover it. And the analysts who do generally don’t like it. It’s not a cocktail-party story. It’s not a sexy stock…But it has enormous upsidepotential…”

by Bill Bonner

“…What “everyone knows” is usually wrong, we’ve noticed. For in order for everyone to know it, an idea has to be reduced to such a low common denominator that the sum sinks below zero. Whatever insight was contained in the original idea is stripped out so that the husk – light and portable – can be carried around like a campaignslogan…”

by Eric Fry

“…Cash flow is the alpine spring water of the financial world. Pure. Crystal clear. Free of impurities and pollutants. It is “la source” of every growing enterprise. And yet, like water, cash flow is so basic, so unassuming, that it is easily overlooked by investors — particularly during exuberant financial epochs…”

by James Grant

“…The Fed was slow to raise the funds rate in 1999 and early 2000. It was slow to reduce the rate when, in the second half of 2000, boom turned to bust. The Austrian School economists who originated the theory of the investment cycle prescribed aggressive monetary ease in the bust phase, lest a depression feed on itself to become a ‘secondarydepression’…”

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HEADLINE, NEWS And INSIGHT: Bear Market Could Last Awhile. So What Do You Do?… The Gold Standard: A Morality Play… How Will We Know When Bad Is Bad Enough?

Prepare for Poor Long-Term Returns
by David W. Tice

“…Even at today’s prices, high returns demand bold assumptions – like assuming that overstated earnings will grow at above normal rates, and that investors will pay above-normal multiples forthem…”

America’s Dangerous Addiction
by John Myers

“…Things began to go awry 30 years ago when the United States went off the gold standard. No longer restricted by the amount of gold in its coffers, Washington was able to freely print, spend and borrow. The result was that total public debt began tosoar…”

The Point Of Maximum Pessimism
by Raymond F. Devoe, Jr.

Are we at that “point of maximum pessimism” yet? The difficulty with answering that question is that you only know about those points in restrospect. Certainly March 10, 2000, with the NASDAQ Composite at 5048 was a “point of maximum optimism,” but few realized it at thetime.