No Place for a Gold Bug

That is no country for gold bugs
The young in one another’s tattooed arms
Birds in the trees
Those dying generations…sick with desire
And fastened to a dying economy

Dear Readers who wish to understand what is going on in today’s economy might want to read Yeats’ poem — ‘Sailing to Byzantium.’ In our view, we are all en route to Byzantium…or perhaps to Rome.

We are bound for romantic decay…or a grubby fight to the finish. We will see.

But this is no place for gold’s final bubble. Not here. Not now. Not yet.

Gold “hit the wall” yesterday, says one headline.

“Biggest break in gold in 30 years,” says another.

As anticipated, gold is getting whacked. But what kind of whack is it?

To speculators on the wrong side of the trade, it was catastrophic. But was it serious? Maybe. Maybe not.

We’ve already given you our big prediction on gold. No point in saying anymore.

The bull market in gold began at the end of the ’90s. It will keep going until the price of gold intersects the price of the Dow. Currently, the Dow is over 10,000…and going up. Yesterday, it rose 143 points.

Gold, meanwhile, is going down. December contracts lost $104 yesterday. At one point, the spot price was down $150. It now costs less than $1,800 to buy an ounce of the stuff.

So, there’s still a WIDE gap between the Dow and gold, and it’s getting wider. Will it ever close? Who knows? But that’s our bet. And if we’re even close we’ll call it a success.

Because what it tells us is that the movements in gold and in stocks are long and big. And if you want to make real money, you focus on these big movements, not in the day to day price frenzy.

The way we see it, the time to get into stocks was in August 1982. Or anytime in the ’80s. Stocks went up for years…until the Dow finally peaked in January 2000. It had gained more than 1,000% — a 10 bagger, as investors like to say.

But then what? Then, forget stocks. January 2000 was the time to get into gold. There was a bust in the stock market in the early ’00s…followed by intervention from the feds…which led to a huge bubble. That bubble blew up in ’08-’09…sawing the Dow almost in half. Since then, another more massive meddling by the feds has moved the Dow back up. But to where? Around the same place it cracked 11 years ago.

In other words, for all the sturm and drang in the stock market over the last 11 years, investors have made nothing. Not even nothing. Less than nothing. A barrel of oil was $25 in 2000. Now, it’s over $80. More than 3 times as much. Prices have gone up for everything…while the stock market investor has not a penny more than he had when Bill Clinton left the White House.

The gold buyer, on the other hand, has 5 times as much money — even after yesterday’s big whack.

He who laughs last laughs best.

Yesterday, stock market investors got to laugh at the gold bugs. It’s time they had a chuckle. They’ve waited years for it. And our guess is that they’ll have plenty more laughs in the months…and years…ahead.

Because this is no place for a gold bug. Not really. We are fastened to a whole herd of dying animals — the credit expansion…the housing decline…Keynesian economic theory…the dollar-based monetary system…the social welfare political model…the bankrupt empire…the declining marginal utility of military force, debt and oil…and all those dying generations themselves. And we could probably think of more! All of them, in their dotage, will drag down prices…including, perhaps, even the price of gold.

We will have to wait for these wretched things to die. Then, when they are out of their misery and out of the way…or brushed aside by a desperate Fed…the next stage of gold’s bull market can begin.

Bill Bonner
for The Daily Reckoning

The Daily Reckoning