02/19/10 Paris, France – Oil edged up towards $80 a barrel yesterday. And the latest numbers for producer prices showed more inflation than was expected.
Meanwhile, jobless claims were up. And the Dow rose 86 points…
What do investors see that we don’t? A mirage…the shimmering of hot money…money that comes from the feds. And they can’t believe it’s not real.
But that’s the problem. No one can tell the difference between real money and the counterfeit stuff. Nor can they tell the difference between real prosperity and the phony variety. And who can really know whether the feds are doing some good…or just up to their usual tricks?
Oh my…it’s Friday…and we’re too tired to dig very deeply into these issues. We’re going to keep it simple…even superficial…
Yesterday, gold rose $4. Is it too expensive…or too late… to buy in now?
What we’re looking at is a huge, systemic failure. Instead of ‘keeping it real,’ the financial system has been so phonied up that you can’t tell what’s what.
And then, when prices move…you have to figure out what’s really moving. Is the world spinning? Or just you?
We’ve been following the gold market for years. Gold has gone up about 300% over the last 10 years. But what does that mean? Does it mean gold has gone up? Or that the dollar has gone down?
We raise the question because we’re wondering how to keep score… Richard Russell suggests that you should keep score in ounces of gold, not in dollars. He’s right. Gold is not a perfect way of measuring wealth…it’s just the best way.
Over the long pull of history, gold is more reliable a measure of wealth than just about anything else. Whether you had 100 ounces of gold at the time of Caesar or 100 ounces at the time of Charlemagne…or 100 ounces during the Jimmy Carter years – you were well off.
Note that we said gold is a ‘measure of wealth’ not means to wealth. Gold is inert. Lifeless. Incorruptible. But inherently shiftless. It never gets out of bed in the morning. It has never earned a penny in its entire life.
Gold won’t make you rich. It toils not; neither does it spin. Since it doesn’t hustle, it won’t increase your wealth. That’s why, in the Bible, the slave who kept his master’s wealth safe in gold got beaten. Gold won’t earn a profit. It won’t pay you a salary or give you a company car. All it will do is help keep you from getting poor. We’ve never heard of a man who had 100 ounces of gold who was poor. On the other hand, we’ve read about millions of people with stacks of paper money who couldn’t afford a cup of coffee. In our wallet, for example, is a 10 Trillion Dollar bill from Zimbabwe. A dear reader gave it to us. You could have a stack of those a foot high. You still wouldn’t be able to buy a latte at Starbucks. On the other hand, imagine you had a stack of Krugerrands or maple leafs. Well, you still couldn’t buy a cup of coffee at Starbucks. Because the dumb clerk wouldn’t know what it was. And if he did take the gold coin in exchange for coffee, he’d probably rush over to the mall where some sharp dealer offered to take it off his hands in exchange for PAPER MONEY!
You see, the average person has no idea what real money is. One dollar bill looks the same as another to him. And gold? He’s probably never seen gold, unless it was wrapped around his finger.
Gold is real money. At least, it’s as real as money ever gets. Gold represents wealth. It can be exchanged for wealth. And since the above-ground supply of gold grows about as fast as the economy itself, gold tends to hold its value over centuries. Today, gold is worth about the same as it was worth 2000 years ago.
But you’ve heard us make that point before, haven’t you? Well, the point we’re making today is different. If gold holds its value, more or less, year after year…how can you expect to make any real profit by holding gold? Won’t it hold its value in the future too?
Yes, dear reader, it probably will. As inflation increases, you’ll watch your gold shoot up in price…along with other prices!
BUT…gold is subject to manias and bubbles…just like everything else. Though, it can be expected to hold its value in the long run, in the short run, it could become very over-valued. Why? Because the paper money system is doomed. It is doomed because we can’t tell the difference between a real dollar…and a phony one. And it is doomed because the people in charge of dollars find it more convenient to introduce new counterfeit dollars than to strictly control the quantity and quality of the US currency.
Little by little, average people will come to see gold as a way to protect themselves. Then, suddenly, they will begin talking about gold. Cab drivers will have opinions about which gold coins are the best one to own. Hairstylists will want to convert their savings into gold rings and bracelets. Investors will talk about how much they made by trading in and out of mining stocks.
Gold will soar. Gold’s bubble will have finally arrived. Then, it will be time to sell.
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Lets see the Fed raises rates, stocks up, gold up , dollar down, oil up . Something smells fishy here I believe we are living in bizzaro world.
Hi Bill,
Once we ‘know’ that Gold bubble has arrived; what would you buy when you sell Gold?
If you do sell at the right moment, when will you buy again? Is it really worth going through this exercise of selling and buying GOLD?
I’ll stick with equities, thank you very much. Nice 3% gain this week and more to come next week.
News has been excellent, Fed is showing it won’t let the party get out of hand, earnings have been great. And technically the market is poised to run much much higher.
Yep, I’ll continue to stick with equities – a sure win now that the economy is showing strong growth.
Sell your gold? For what, paper? Not brilliant…gold and silver are insurance and preserve wealth against a breakdown in paper currency. A much larger treatise is needed to deal with the conversion of PM’s into usable, practical commodities such as food or means of food production. Presumably, our demented government will understand the imperative of PM backed currency before commerce locks up. If not, welcome to the world of chaos.
The only wealth that we can truly rely on is our own production. That is what we are worth. Not currency, not gold, not silver, not oil. We must believe in ourselves and our abilities.
First you said:
“And if he did take the gold coin in exchange for coffee, he’d probably rush over to the mall where some sharp dealer offered to take it off his hands in exchange for PAPER MONEY!”
You finished saying:
“Then, it will be time to sell.”
So, then, exchange your gold for the aforementioned PAPER MONEY? You were making perfect sense, as usual, until the final line.
Whatever you do, don’t wait to buy silver and gold, buy silver and gold then wait… When it’s time you will know what to do and it won’t be selling it for paper… Believe me, when the time comes, you will no exactly how to handle your real money (Silver & Gold) and it will have nothing to do with paper dollars, stocks or any of the other crap that our forefathers warned us of. As far as Harry and his nice 3% equity gain goes…. Harry is a believer of a central bank that is owned and operated by people that aren’t even American, yet Harry flys old glory right beside his faith in the fed. in a central bank that Thomas Jefferson warned about a couple hundred years ago. Yes good old Thomas Jefferson, who said a central bank is more dangerous than a standing army and (not verbatim) the day will come that this central bank will leave are CHILDREN homeless and hopeless. Harry, these propped up, artificial gains will end ( all smoke and mirrors) There is nothing Obama, MCcain, or any other man who may be placed in charge of the country that was built on a Constitution that they wrote for a reason and none of it had to do with printing paper with their pictures pasted across these notes nor did they say call this paper money…. The Constitution, Article 1 Section 10: all legal tender shall be coined from silver and gold….. In 1964, president Johnson thought he knew better than the founding fathers and took the silver out of money and replaced it with clad crap then along came Richard Nixon who thouht he also knew better than the founding fathers and took us off the gold standard. Both men committed crimes against law that was written long ago, laws that were meant to take us away from the grips of a king and Queen law meant to preserve rights, freedom, and a future for posterity (all taken away, stepped on, spit on, and leaves nothing , I say again, NOTHING for POSTERITY) my grandchildren, your grandchildren, and their children shall all suffer for the arrogance of each president that allowed our CONSTITUTION to become a joke, to become a 3% gain with a propped up dollar note(Paper) in which all the Harrys of our nation believe so strongly in…. Please enjoy that 3% gain while you can and when the day comes, which can’t be too far away, you might want to flip old glory on your site in observance of the corruption that has costed many American retirements, many Sr. citizens with NOTHING, NOTHING but memories of what it felt like to place their hands over their hearts with pride as the star spangled banner played at a ball game…. But it’s all OK, after all you did make a 3% gain on your equities…. Lets just wait to see what happens before this year that is showing you strong economy growth…. God Bless and Forgive us all…..