Saturday, May 29, 2010

Gold Denigration Persists

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This screen capture of a recent set of headlines at Yahoo Finance caught my eye:

Of course, the actual article in the link (see it here for yourself) from the screen capture above was titled "Why I Don't Trust Gold," by a mediocre to subpar paperbug "analyst" by the name of Brett Arends from the Wall Street Journal.

I find it amusing that mainstream financial sources would actually take the time out to call an asset class "ridiculous," going so far as to intentionally mischaracterize the already dubious content of the article. Imagine Bloomberg calling stocks or real estate (as asset classes) a ridiculous investment! Of course, to be fair, under the glaring "ridiculous" headline are two articles related to Gold that are not disparaging. We are no longer in the "stealth" phase of this secular Gold and Gold stock bull market. You couldn't find 3 articles about Gold within a daily set of mainstream financial headlines 5 years ago.

The Gold bull market has much further to go in both time and price. The groundwork continues to be laid for a mania phase. We have a Gold bubble or we don't get another bubble for a while. There are no other reasonable candidates on the horizon. The Dow to Gold ratio will reach 2 and may well go below 1 this cycle.

It is an impossible concept for the brainwashed herds to comprehend. How can an ounce or two of Gold ever possibly buy the whole Dow? And even if it can, Spam has more utility according to Nouriel Roubini. Only if the world is coming to an end could Gold reach such relative heights, and in that case, who cares?

Of course, the world wasn't coming to an end in 1932 or 1980, though the fear was palpable and the Gold lust was intense and overblown. It will happen again. No need for the world to come to an end, just a cycle of human fear and greed that has been around a lot longer than the current crew of "modern" financial drones. Those outside of Wall Street tend to forget that life can and does go on with or without them.

It irritates me to see Gold denigrated because I know it is keeping otherwise rational folks from protecting themselves by buying physical Gold. However, at the same time, I love to see the persistent hatred of Gold in the mainstream media for selfish reasons. Because I can assure you, when the time comes, the mainstream financial press will cheerlead for Gold like it was in 1999. They will encourage Gold ownership at the worst possible time and cause a contribute to a mad stampede that could cause the Gold price to quadruple in less than a year.

And I hope Gold bulls can accept that the speculative frenzy will eventually get so overblown that it will cause the Gold price to subsequently collapse on itself once speculation has exhausted itself. I am not saying Gold can't back money again, but every bull market gets overdone to the point where it requires a secular bear to correct the excesses. You can't have it one way and not the other. Let's worry about it more when the time draws near, however. We're still a long way from this point.

First the herd got burned in stocks, next they will get burned in government debt, and finally they will get burned in Gold. Wash. Rinse. Repeat. Those fed up with the stock market should move directly to Gold on the next Gold price correction and skip the intermediate step of government debt. Most won't, though. They will follow the herd into the next financial abattoir. The real bubble continues to be in government debt, the perfect bubble because none of the participants even recognize it.

Now, remember that most bubbles can take a heckuva lot longer to pop than you think. I have watched so many inflationists call for the imminent breakdown in government bonds, yet U.S. debt remains in an unequivocal bull market. In fact, Gold and U.S. debt are really the only secular bull markets left standing! The difference is that the U.S. debt secular bull is mature and provides only the potential for capital preservation (assuming one is not using leverage, there is negligible opportunity for capital appreciation). In other words, in return for an almost zero yield, non-traders are taking on an unacceptable risk of the bubble popping and destroying their savings.

Gold, on the other hand, is at the threshold of the most exciting part of its secular bull market. The risk in Gold is $100-200/oz to the downside with an upside potential of $1000-4000/oz, and potentially more! Gold denigration persists for now. Paperbugs feel "ridiculous" for missing the boat and are projecting their psychological angst onto the shiny investment their paper princes told them to ignore. Wouldn't you be mad if you were a buy and hold investor in common equities over the past decade?

Gold is acting and will continue to act as a currency. It is the backbone of the current international paper monetary scam (I mean system), whether you understand this or not. Gold will be revalued much higher in current paper debt ticket terms. If the markets won't do it (and I think they will), the same people and organizations now sponsoring chrysophobia will decree the Gold price higher (under the threat of force if needed) and make more money off the revaluation than 99.9% of Gold bulls.

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