A guy wrote to John Nadler of Kitco and asked, "Who were some of the gold bugs
who were persisting in recommending gold bullion despite a two-month decline
that so far has taken more than $200 off the price of an ounce of the yellow
metal?"
Instantly, I knew that he was talking about me! Mostly because I have never
stopped recommending gold and silver ever since the Federal Reserve started
going freaking bananas in creating excess money and credit in 1997 and are
still doing it today. So it's me he's asking about! Me!
Mr Nadler ignores me waving my hand to let this reader know who was
recommending gold (and still is) and he ponders, "This
question got me thinking about what makes a gold-oriented adviser a genuine
'gold bug'?"
I wave my hand excitedly in the air even more excitedly! I know the answer to
that one, too! A genuine gold bug is a person who is emboldened by knowing that
4,000 years of continuous economic history proves that EVERY fiat currency has
failed, as they will always fail, and that gold will rise, just like it always
has, because people have always turned to it as a last resort against losing
everything that is still denominated in the depreciating currency! It's a 100%
guarantee! How can you NOT be bullish?
Again, Mr Nadler ignores me, and says, "The best answer I could come up with is
that a gold bug is someone who will remain bullish on gold, come what may",
which he typifies with the anecdote about a newsletter editor who predicted
gold would rise when, instead, it fell in price. When "asked why gold had
continued to fall, despite persistent predictions that it would rise, this
editor said that it was the market, not he, that had been wrong."
That's right! The market was wrong! My theory is that if the market wasn't
consistently wrong, then prices would never change!
Well, apparently nobody is interested in my Stupid Economic Theories (SET), but
just look at when the price of gold was at about $750 an ounce, especially
since it was $20 an ounce at the beginning of the last century, for crying out
loud! Is there another freaking asset that you could have held that long that
rose as much, and while incurring no expenses or taxes whatsoever? No!
I know he sees me out here, waving my hand like some demented doll in a
whirlwind, and he knows that I also know that there is a concerted, coordinated
effort on the part of central banks, the International Monetary Fund, the Bank
for International Settlements and many others to restrain the price of gold, as
they have actually admitted over and over again, and thus the price of gold is
artificially low.
So that is probably why Mr Nadler then said, "Part of that world is the
possible existence of conspiracies, including governments and central banks
that might want gold to decline. I don't necessarily disagree with that. But,
in my opinion, it should not be used as an excuse for an incorrect forecast."
Hahaha!
I say, "Wow! This guy grades tough!" Stung, let me see if I have this right so
that I might learn from my mistakes; I know that people I don't know are
conspiring against my asset of choice with plans that are unknown to me, and
yet if I get bushwhacked by them, it's my fault?
You can tell he doesn't want to get into the "fault thing" or my appalling lack
of manners, and says that his opinion is such that "if you're looking for an
adviser who will tell you when to get in and out of gold, then that adviser
should be judged according to whether he was correctly anticipated the rallies
and declines."
At this, I wave my hand even more! I can tell you the answer to that, too! You
get into gold with a dollar-cost-averaging investment plan when excess money
and credit are steadily being created by the Federal Reserve, because this
extra money is going to cause inflation in prices, and gold always rises as a
traditional hedge against inflation because, well, it always has! Always!
And to finish answering the question, you think about getting OUT of gold,
years and years later, when interest rates are well into double digits,
everything has turned to crap, gold is selling at astronomic levels, and people
run around screaming, "That Rude And Disgusting Mogambo (RADM) was right! We're
freaking doomed to a horrible death by inflation in prices that comes after the
horrifying increases in money and credit! I wish I had some gold and silver
now! And a burrito would be nice, too!"
But again he ignores me, and says, "Several themes emerged that became telltale
signs of at least gold-bug-like tendencies. One is the notion that gold's
fluctuations don't really matter, since we ought to be investing in it as a
long-term hedge against currency devaluation."
Now I am waving my hand, because that is exactly right! Exactly!
"What I am looking for in an adviser," he says, not looking at me, "and what I
presume most investors are too, is someone who can accurately and objectively
assess the world as it is and, after taking all relevant factors into account,
make a profitable forecast about what is going to happen. Part of that world is
the possible existence of conspiracies, including governments and central banks
that might want gold to decline."
By this time I am bursting, and I shout, "That's me! I can tell you EXACTLY
what is going to happen 'after taking all relevant factors into account',
because what is going to happen is the same thing that ALWAYS happens when an
idiot government starts creating, or allows to be created, excess money and
credit, which is that the money in question will expand and expand, and end up
with zero purchasing power while gold, when priced in a currency that has no
purchasing power, soars to infinite levels when priced in that currency, and
that is what has always happened, anyway, and that is why I am 100% sure,
dead-bang sure, no-doubt-about-it sure, can't-miss sure that it will happen
again!"
And not only that, but the statistics prove that making a profit by short-term
trading cannot really be done, especially by the overwhelming majority of those
that try, and those that do make a few bucks usually seem to be insiders
somewhere.
In fact, accumulating gold bullion during a booming expansion of money and
credit using a dollar-cost-averaging buying program (where you buy gold with a
fixed percentage of your income on a regular monthly basis, which means that
you automatically buy more when it costs less and you buy less when it costs
more) will kick the living crap out of the accumulated gains of any trading
strategy you can name over the long term, just like it ALWAYS kicks the butt of
all the other trading strategies!
And when you add the money you save due to bullion's complete lack of any
additional expenses for "account fees", "customer fees", commissions and taxes
due on the short-term gains all along the way, there is no other investment
strategy that even comes close!
And betting with gold against a fiat currency in the hands of politicians is
the biggest no-brainer on the planet! Whee! This investing stuff is easy!
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.
Republished with permission from
The Daily Reckoning. Copyright 2008, The Daily Reckoning.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
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