Saturday, January 3, 2009
Do as we say, not as we do
Is the message of our hypocritical central bank and those of other major countries. They all hold tons of gold - why? Gold is a worthless metal with no role to play in modern economic theory or modern economies! It is a barbarous relic for kooks and pirates to worry about. So why do central banks around the world, especially ours, supposedly own tons of it? Why are the Saudi, Chinese, Iranian, Russian and Venezuelan government leaders openly talking about increasing their gold reserves by a significant amount? Why don't they sell their gold and make lots of cash?
Why are many government agencies that are supposed to mint coins for public consumption/buying shirking that role at a time when demand is high? The U.S. Mint has led the charge with claims that it no longer wants to make enough coins to meet the demand despite ample productive capacity to do so. So large central banks are buying physical gold bars hand over fist but sorry Johnny Sheeple, we can't make any one ounce coins or bars for you to protect your savings. Be a good patriot and suffer through our forced confiscation via potential hyperinflationary policies that are bound to kick into gear eventually.
Those who do not understand gold do not understand history or the collective wisdom of thousands of years of human experience. Paper will be printed and pushed into the system with shovels, trucks, and helicopters by our government to try to start a new boom. This makes every piece of paper that is already in existence worth less. Period. Inflation means currency debasement/depreciation. Costs go up due to the printing press destroying the value of phony money.
The harder Hanky, Benny and the Capitol gang push on the monetary accelerator, the more they punish all of us and our children because they don't have the political courage to let our economy heal from its wounds in a sound manner. Whether through a complete deflationary implosion or a lurch into near hyperinflationary conditions, you can be sure that money and its role in society are about to be thrust into the spotlight big time around the world.
When people finally start to question and read about where all this is headed to, the gold rush will begin. You ain't seen nothing yet when it comes to the price of gold. Ask someone in Zimbabwe how much they would pay for an ounce of gold! If deflation carries the day, you will have lost nothing and will have been in the only sector that can protect you in a deflationary environment - cash! Gold is money and has always reverted to this role in a crisis. What other investments besides cash and gold were up percentage wise in 2008?
I think 10% of one's portfolio at a minimum should be in physical gold and 30% is not unreasonable. When the Dow to Gold ratio gets under 2, start thinking about moving back into paper assets. Until then paper is for trading, not holding.