09/24/10 Delray Beach, Florida – “Gold is saying something,” writes Bloomberg columnist Mark Gilbert.
What’s it saying? Nobody knows. Well, at least nobody who works at The Daily Reckoning. We listen. We hear. But we still don’t know what the hell gold is talking about. The yellow metal is speaking in riddles.
Yesterday, gold spoke again. It rose $4 to a new record high of $1,296. Tomorrow, it will probably hit yet another record – possibly over $1,300.
In the conventional wisdom, gold is telling us to watch out. Inflation is coming. Either the regular kind…the kind that comes with “growth”…or the kind that comes with the “hyper” modifier. Almost everyone likes the regular kind. Almost no one likes the hyper kind.
But being the contrary coots that we are, we’re inclined to think that there will be many a slip between the cup of $1,300 gold and the puckered lips of gently rising inflation levels.
Watch out, dear reader, watch out.
Not that we’re dissing gold or sassing the goldbugs. Not at all. We think it’s going to $1,500…and then to $3,000. But next week?
Don’t know. We have to keep listening…trying to interpret the whispers.
There’s something all together too obvious and too easy about the gold market now. It just goes up. Year after year. Maybe it’s a trap.
In 2000, there was a crash in dot.coms. The whole magic of the tech bubble suddenly disappeared. And guess what? Gold went up.
In 2001, the War on Terror began. And guess what? Gold went up again.
And again in 2002. And 2003. And 2004.
By 2005, the world economy was in the throes of a massive financial bubble. Everything was going up. Gold went up too.
In 2006, the US had a major housing bubble on its hands. Gold went up.
In 2007, the housing bubble started to lose air. Gold went up.
In 2008, Wall Street stared into the abyss. Lehman Bros. went broke. The feds took over housing finance, auto-making, insurance, commercial lending…and gold went up.
In 2009, the feds went all out to try to engineer a recovery. The Fed ballooned its balance sheet by $1.2 trillion. The federal budget went into deficit by nearly one and a half trillion. Still, gold went up.
And what’s this? The recession officially ended more than a year ago. Housing and unemployment are still limping. De-leveraging is still underway (David Rosenberg calls it a “depression”)…and go figure. Gold is still going up.
Is there anything that can stop gold from going up?
We don’t know. But many smart people are coming to the conclusion that they can’t lose with gold. If the economy recovers…gold is a cinch to go up along with inflation. If the economy falters…gold will go up when the Fed comes to the rescue with more printing press money.
And then, there are the Chinese. God knows they like gold. And they don’t have much of it. If they’re behind this gold market it could last for another 20 years.
So gold is a “can’t lose” investment.
We like gold. But we don’t like “can’t lose” investments. What to do?
Bill Bonner
for The Daily Reckoning
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
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My advice to anyone sitting on a massive pile of gold or silver accumulated over a long period of time: Sell at least some now. Not to lock in a gain, but just to prove to yourself that you are capable of selling without any emotinal attachment to the metal. Call it liquidation planning. If you have never experienced the sell side of the trade, chances are you will miss the top in a realtive way no matter what the dollar does. Practice selling. Sell, then buy it right back tomorrow if you must. But prove to yourself you are capable of pulling the trigger on a sell even as everyone else rushes into the market to buy.
Uncertainty. I think gold goes up with uncertainty.
Bubbles burst and create uncertainty. Wars create uncertainty. “Change” and “new policies” create uncertainty. Political unrest and financial crisis creates uncertainty. Natural disasters create uncertainty.
When the uncertainty is reduced, I think gold will go down. I’m fairly certain that won’t be anytime soon.
Gold is a fear move. The more it goes up the more fearful move into it. Fraidy cats all. Gold in the hand is like holding on to a warm pile of feces. The more you tighten your grip the more it slips out.
Collective human emotions and rationalizations determine the “intrinsic” value of investments, including gold. And those emotions and rationalizations unpredictably vary from day to day. There are way too many variables to consider and analyze, and we don’t even know if we have captured them all or whether we have the capacity to analyze them. What’s worse, the variables that we do know about continue to change in their predictive properties — just like clockwork. If it works today, it’s almost certain to stop working no sooner than I begin to depend on it.
That’s why a strategy such as Harry Browne’s permanent portfolio approach has so much merit: We don’t know what any one of the portflio’s four types of investments (stocks, bonds, precious metals, cash) will do tomorrow with enough certainty to make money at it after the vigorish is extracted. We like to think we know, but the facts show otherwise. It’s the vigorish takers who make the money.
So, choosing to work systematically with uncertainties makes sense if it seems to exceed the vigorish over the long term. It’s not a shoo-in for sure. There isn’t any such thing.But betting on the perpetuation of uncertainty among investment categories to systematically deliver modest profits lets people sleep better at night, especially when the modest profits just keep pouring in.
Here’s the thing: gold will ALWAYS be a great investment — sometimes. Bet the farm on it today and you might make out tomorrow. But so many farms have been lost!
The best of both worlds exists in rare gold coins at the moment. Rare, as in only a handful extant surviving. Not to be confused with common date gold double-eagle $20 pieces that are nearly ubiquitous in comparison. I say that only because the premiums on many truly rare coins have crashed this year. To be sure, there is just enough material crossing the auction block to provide headlines about new record prices realized at most of the major auction venues. But if you look a little deeper and watch how slowly inventory is moving at the dealer to collector level, there is enormous downward bias at this time that translates into constant valuation as the intrinsic value of the gold in the coins zooms skyward.
For certain, it’s not something anyone would want wander into if they don’t know what they are doing. But that said, there are some tremendous opportunites out there right now for the collector/investor who has the courage to dump common gold coins in pursuit of more esoteric material.
I sure hope A Devils Advocate is wrong. If the economy heads down I was planning on using my gold for food…
If things go down what makes you think there will be any food to buy?
http://fofoa.blogspot.com/2010/09/shoeshine-boy.html
READ AND ABSORB!!!