Market Review: Dreaming of a Gold Christmas

Good news, goldbugs – your favorite precious metal reached its highest level in nearly 18 years this past Thursday.

We know that longtime DR sufferers aren’t surprised; they’ve been advised in these pages to drop the dollar and buy gold for years now. After all, gold is the anti-paper, and despite recent dollar strength, investors are increasingly exploring alternatives to U.S. and European currencies, as well as stocks and bonds.

"Strength in the dollar is more a reflection of trouble for the euro and the yen," Addison Wiggin tells us. "Gold is the only investment alternative not susceptible to what ails the dollar."

And gold has proved to be a better measurement of wealth (and a better way to hold onto that wealth) over paper money time and time again. Bill

Bonner has called gold "nature’s money" – and for good reason. You can’t turn on a printing press or create it out of thin air; this naturally limits the "money supply," generally keeping it in line with the economy itself.

And last Thursday, gold for December delivery rose $7.80, or 1.6 percent, to $486.90 an ounce, the highest close since January of 1988. Some analysts say that the gold market may been supported by comments from Russian and South African central banks, which hinted that they might want to beef up their gold reserves. Other experts contend that strong physical demand from countries like China and India are driving the rally. And you can’t forget about those who buy gold as a hedge against inflation.

Whatever the reason for this rally, it all looks very good for those smart investors who hold the yellow metal…and many believe that it’ll just keep getting better from here.

"Gold is going to (hit) $500 by Christmas and everything that happens is a step in that direction," said Peter Hillyard, head of metal sales, Europe, at ANZ Investment Bank.

"The funds want to diversify portfolios and they are buying commodities because they are seen as being potential for better returns."

Kate Incontrera
The Daily Reckoning

November 20, 2005

P.S. Gold’s jump this past week echoes the prediction Bill and Addison make in their new book, Empire of Debt. "Gold is what people buy when they begin to lose confidence in the economy, the government and its money," they write. "We expect they will begin to wonder more and more."

P.P.S. Gold isn’t the only commodity that’s hot right now…all the precious metals soared this week…silver hit an 11-month peak, and platinum neared a 26-year high. If you haven’t yet, now is the time to make your move in the commodities market…and we know one of the easiest (and most profitable) ways to get your feet wet…

— Daily Reckoning Book Of The Week —

Empire of Debt: The Rise of an Epic Financial Crisis
by Bill Bonner and Addison Wiggin

"Watching the news is a bit like watching a bad opera," say bestselling authors Bill Bonner and Addison Wiggin. "You can tell from all the shrieking that something very important is supposed to be happening, but you don’t quite know what it is. What you’re missing is the plot."

After a generation of being spoon-fed reality by media, it’s understandable that Americans are confused about the state of their nation. In their newly released book, Empire of Debt, which is sitting strong at number four on Amazon’s bestseller list – and number one on the business list, Bonner and Wiggin wield their sardonic brand of humor to expose the nation for what it really is – an empire built on delusions.

Americans are rapidly facing a choice: recognize these dangerous delusions and take steps to avoid their collapse. Or remain ignorant of them and risk losing all of their wealth when the house of cards comes crashing down.


THIS WEEK in THE DAILY RECKONING: Recently, our friend John Mauldin invited Bill Bonner to meet him for dinner while he was visiting London. What followed was important debate that may change the way you think about investing. Get the whole story in "This Time It’s Different" below…

Remembering Remembrance Day11/18/05
by Bill Bonner

"There is something about the métier of soldiering that seems to attract martinets and blockheads. We see what it is immediately. A thoughtful man might wonder what the point is."

Greed Is Good! Or Is It?11/17/05
by Kevin Kerr

"When we seek more, and that’s more of anything, we tend to make rash or impulsive decisions, and ultimately this negatively affects us."

The Tyranny of the Living11/16/05
by Bill Bonner

"Oh, progress! Thou art forever making things better, aren’t thou? Throw out the sacred books – what are they, but the thoughts of dead imbeciles?"

This Time It’s Different11/15/05
by John Mauldin

"First, there is a new business model. Just as industrialists were new in

the late 1700s, there is now a new model developing. GaveKal calls this new model ‘platform companies.’"

Inflation Expectations11/14/05
by The Mogambo Guru

"Greenspan also said, ‘Inflation expectations have decreased, and accordingly, the inflation premiums embodied in long-term interest rates around the world have come down.’ Huh?"


FLOTSAM AND JETSAM: People generally have faith, albeit misguided, in their nation’s paper currency. They see no reason to doubt that the dollar in their pocket won’t be worth the same tomorrow as it does today.

However, Bill Bonner explains why this unconditional trust in paper currencies is foolish…

by Bill Bonner

Some paper currencies are destroyed almost absentmindedly. Others are ruined intentionally. But all go away eventually. By contrast, every gold coin that was ever struck is still valuable today, most have more real value than when they first came out of the mint.

Central bankers reported in early 2005 that 70 percent of them were increasing their reserves of euros. As for the world’s erstwhile and present reserve currency, the dollar, they seemed to have, not growing reserves, but growing reservations. We also have reservations about the dollar.

Whatever it is worth today or tomorrow, we are sure it will have less worth eventually. That it is not regarded as worthless already is remarkable.

The average dollar is nothing more than electronic information. It exists thanks only to the ability of digital technology to keep track of it.

Relatively few dollars ever make it to paper, and many of them end up in the pockets of Russian drug dealers and African politicians. Most dollars in most people’s accounts are not even graced with the image of a dead president; when the end comes, they won’t even be useful for starting fires.

It is imperial vanity that keeps the dollar in business. And it is vanity as well as the decline of the empire that will make it worthless.

Economists want money they can control. Central bankers want money they can debase. And politicians want money they might get their mug on.

The trouble with gold is that it turns its back on world improvers, empire builders, and do-gooders. It is money that no central bank promotes and none destroys. It is money that exists only in a tangible form, a real metal – a number on the periodic table.

"Gold goes up and down, just like other kinds of money," say economists.

Which is true. "You can protect yourself from inflation in other ways," say the speculators. True again. "Gold pays no dividends or interest," say the investors. True. Nor will gold cure baldness or add inches to your most private part. Even as money, gold may not be perfect. But it is better money than anything else.

Gold was around millions of years before the U.S. dollar was invented. It

will probably be around a billion years after. This longevity is not in itself a great recommendation. It is like buying a suit that will last longer than you do; there is no point to it. But the reason for gold’s longevity is also the reason for its great virtue as money. It is inert; it yields neither to technology nor to vanity.

The world improvers will always be with us. They will spend more than they have, boss other people around, and generally make the world a worse place to live. They will offer proposals like those of Thomas L. Friedman. The nice thing about gold is that it is so unresponsive. It neither laughs nor applauds. Gold is money that no central bank promotes and none destroys.

It is money that exists only in its tangible form – a real metal, a real thing.

Paper money is a handy tool for the world improvers. They use it like politicians use civil service jobs and generals use heavy bombers – to get their way. Whatever the vapid ideal du jour, it takes money to pursue it.

Given enough money, the poor can be fed and housed. The middle classes can be given free medical care and low-cost loans for houses. The upper classes can be given contracts and favors. Enemies can be summoned up, bombed, and reconstructed. Bread, circuses, war – the imperial program costs money.

How to get more money for these great new programs, these marvelously worthwhile ideals, these fabulous public spectacles? Gold flatly refuses to cooperate. It doesn’t even give a reason. Instead, it stays as mute and reticent as a dead man in front of a television. No matter how persuasive the advertising, the man is not going to go for it.

Paper money, on the other hand, barely needs encouragement. Start up the presses! Lower the interest rate! Relax reserve requirements and lending standards! Sell more bonds! Create more paper! Paper money is ready to go along with anything. Like George W. Bush, it never met a boondoggle it didn’t like. Sooner or later, it ends up as worthless as the projects it was meant to pay for.

Bill Bonner
The Daily Reckoning

Who’s the biggest cheerleader for paper money? That’s right, the maestro himself, Alan Greenspan. And now, Ben "Printing Press" Bernanke has promised to follow in Big Al’s footsteps. That why we sent a copy of Bill and Addison’s latest book to the members of the House and the Senate (and to Al and Dubya) with a cover letter that suggested that continuing the policies of Alan Greenspan, while it might be what the country wants, is not likely to yield the desired result.

We sent the books at the beginning of the week, which means by now Empire of Debt has landed on Congressional desks all over the country. All of us here at The Daily Reckoning are planning on contacting our Senator or Representative to make sure the received their copy and to ask them to take a look inside the book – even if they only read the introduction.

The Daily Reckoning