The Truth On Gold

A Daily Reckoning Whitepaper Report
by The Mogambo Guru

All of this economic stupidity will end in tears (as it always has) as inflation in prices destroys economies by destroying a lot of people’s lives. That is the problem with creating money: It shows up in prices, higher and higher. And after awhile you get really sick and tired of hearing the whining and complaining of your family about how they can’t afford to buy anything, and how it is all your fault just because you are lazy and stupid, and how you are the worst parent and worst husband in the whole world. Then one day you find yourself thinking of murder-suicide scenarios and what the newspaper headline would say, until you say to yourself, “Whoa!”

Better that you start thinking about robbery, or better yet, getting money that does not depreciate in the first place – gold. And if you also want a little capital gain with that buying-power-security, then Nick Barisheff at Bullion Marketing Services Ibbotson Associates has some news that will be of interest to you. It concerns the Eternal Mogambo Truth About Gold (EMTAG).

He claims that he has never heard of the EMTAG, but notice that he does not explain how he stated it exactly when he said, “It takes fewer ounces of gold to buy a house, a car, the Dow, or almost any other good or service than it did in 1971.” And even more damning, he admits that he said, “Gold will continue to increase in purchasing power as long as its inflation rate (mine supply) is lower than the increase in the money supply.”

In case you were wondering, like me, he added, “Mine supply increases by about 1.5% annually.”

Truth On Gold:Gold Rising

So (and this is so exciting!) as the money supply has been expanding by almost 12%, you would certainly expect gold to rise in price? Well, that is exactly what has happened, QED (picking my own entry and exit points to skew the data the way I want)!

And, since the money supply is still expanding exponentially, you can also certainly expect the price of gold to continue to go up, too! Whee!

Michael Nystrom at hears me chortling and giggling like a little girl in my childish glee about the coming rise in gold, and notes that Robert Prechter has pointed out that “the nominal Dow peaked at 381 in September 1929, and today it is hovering somewhere around 11,500, a 30X increase over 77 years. Not bad, right? But amazingly, measured in gold, the recent Dow highs are actually right about where they were at their 1929 peak!”

Truth On Gold:Details

For those interested in the actual details, he says, “It took 18.5 ounces of gold to buy the Dow on September 3, 1929. On May 10, 2006, it took 16.5 ounces of gold, so it is actually cheaper.”

So gold made slightly more gains! Hahaha! He adds, “As Dr. Gold would put it: One dollar won’t buy what it did in 1929, but one ounce of gold (about $20 at the time) sure will (about $650 today)!”

I see the audience getting up to leave, obviously taking the lesson to heart, and are going out to get some gold immediately. I am suddenly in a panic, as I need them to come back for the next part of the presentation, where I hopefully sell them a sizable interest in my exciting, new Mogambo Time-Sharing Investment (MTSI)! So I leap up, seize the microphone, and order them all to come back and sit down – right now! – or I will hunt them down, one by one, and shoot them through the head. But, as usual, nobody listens. They continue to stream out, only now making rude hand gestures at me.

And I could hardly blame them for their disinterest. I am as full of empty bluster as I am full of crap about most things – as long as you don’t keep pestering me, like that stupid credit-card reader at the damned grocery store that kept pestering me, pestering me, pestering me to “Enter PIN number”, and I keep telling it that I don’t HAVE a PIN number. It’s a credit card, you stupid machine, and it keeps beeping, beeping, beeping for me to “Enter PIN number”, and I am yelling that I don’t have a damned PIN number, dammit. And it is still beeping, and we’re all yelling and beeping, and after awhile I grab a can of stewed tomatoes and shout, “You want my PIN number? Is that what you want? Okay, here’s my PIN number, you damned beeping machine from bleeping hell!” I was winding up to really smash that hateful little device to little tiny pieces when the ashen cashier said, “I’ll enter your credit card number from here, sir! Just don’t kill me or break the machine!” which I figured was a fair compromise. So I said, “Okay.”

Truth On Gold: Buying It

But nobody was pestering me; in fact they were doing the opposite by leaving. But I could not blame them for leaving to buy more gold, either, as this is the everlasting beauty of gold: It has preserved buying power over the last century, and over the millennia, while I laugh the Haunting Yet Scornful Laugh Of The Mogambo (HYSLOTM) at the dollar, the greenback dollar, the bigshot dollar, the Almighty Dollar, which has lost about 97% of its buying power in just 94 years, which it will never get back! And it had a 30% decline in buying power in just the last few years!

So if you have not had a net-of-tax, net-of-expenses, net-of-fees, net-of-everything profit of 43%, measured in nominal dollars, in the last four years, then you lost buying power, chump! Hahaha! So much for the promises of “investing for the long haul!” Hahaha! You invested a $20,000 car and netted a $25,000 bicycle!

Well, my laughter rang hollow in the now-empty room, as none of the audience came back, and now I am still stuck in my own crappy, dilapidated house, instead of being able to unload that eyesore on a bunch of suckers in the Mogambo Time-Sharing Investment Scam (MTSIS).

Truth On Gold: The Profits

Thinking quickly, I deduce one other good idea to make a lot of money, enabling me to get out of this dump and say “goodbye” to family, friends and angry creditors: Maximize some profits from the guaranteed rise in gold, that can supposedly be estimated by (for one thing) the percentage change of the fall in the dollar.

It’s a lot, I know that, but now much is all over my head, of course, and it’s all academic anyway. That is why we turn to Puru Saxena, in his Money Matters newsletter. He reports that the shares of gold mining companies go up when gold goes up, like you would expect, but (even better!), they go up as a multiple of the rise in the gold itself! He reports, “So far in this bull-market, mining stocks of precious metals have on average outperformed physical bullion by 300%. In other words, investors who bought the mining shares made three times more money than those who bought the physical bullion.”

I seem to remember that this is also what happened after the stock market crash in the ’30s, and everywhere else before and since then, too, when the government acted stupidly.

Like in Argentina now, where President Kirchner just had a government statistician fired when, as the Wall Street Journal put it, “she refused to alter the ‘methodology’ used to calculate inflation in January. Armed guards then escorted a political appointee to replace her.” Hahaha!

Mogambo Memo (MM) to Argentinians: Buy gold now, while your money still has some buying power, because you will soon be screwed otherwise!

Speaking of actual money, Bob C. was wondering about the acronym “FIAT” when used to describe our “money”. He says, “I believe it is short for Financial Instrument Administering Theft, but I am not sure. Could you please confirm? Thanks!”

I can, and will, answer that question in genuine Inscrutable Mogambo Gibberish (IMG)! With a phony-baloney gravitas, my voice resonates, “No, it isn’t, but at the same time, yes it is. Thank you for coming. Please leave a donation on your way out. A big one! Now scram!”

Until next week,

The Mogambo Guru
for The Daily Reckoning

Mogambo sez: Gold, silver and oil have suddenly declined in price a little bit, and that can only mean one thing: It’s getting to be time to buy more, and you would buy some, too, if you had some money, which you don’t anymore. Welcome to the hell of inflation!

Editor’s Note: Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter – an avocational exercise to heap disrespect on those who desperately deserve it.

P.S.: From Hulbert’s No 1-Ranked Advisory Letter Over 5 Years, GOLD $2000 REPORT: Five entirely new ways to play the gold trend and a hidden way to snap up gold- for less than one penny per ounce!

The Daily Reckoning