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Why Gold & Why Now? (NFTRH176 Excerpt)


Well, what better time to publish a gold-bullish article than the day after the relic was down a hundred bucks?  Here is an excerpt from NFTRH176 (2/26/12) illustrating the continuing case for gold, which probably has more downside 'price' work to do in the near term (pending rebound attempts), even as the value proposition remains just fine.

Why Gold & Why Now?

By now, a decade-plus into the secular bull market, you have likely heard all the reasons.  Back when the stuff was selling for $300 to $400/oz. the case for gold seemed like more of an outlier. I thank the market gods that I found some old gold bugs at back then and read everything the more rational among them had to say. It made sense, as Alan Greenspan was beginning to engage the era of 'Inflation onDemand'.

Now? Well, it is harder for people to think about buying gold because its price has gone up relentlessly since then, and their purchasing power has not kept up. Being a relatively early victim of anxiety toward Greenspan’s inflationary policies, I saw to putting my house in order on multiple fronts a decade ago, ironically after reading Robert Prechter’s 'Conquer the Crash'. It is ironic because while I consider him brilliant, Prechter has apparently not been able to cure his chronic blind spot on gold and its value proposition ( over the decade since I first heard him predict in an interview that $350/oz. was probably ‘the top’. Then came the $390 ‘top’ and then…

Why gold? All I can say is that people who are 100% cash or paper investments and subject to the inflationary whims of policy decisions, are still vulnerable to those decisions and right now, it appears policy makers are continuing a systematic regimen of issuing and manipulating debt in service to money printing (inflation). The rudiments of gold’s investment case have not changed; they are insurance and retained ‘value’.



Look at the chart above and tell me what you see. I see a top panel item – the venerable S&P 500 listing of the US stocks – having gone through a violent series of ups and downs since the mainstream finally became aware (‘Too Big To Fail’ HBO docudrama and all) of just how broken the system is. I see a bottom panel item that has been relatively calm – during the 2008 meltdown and during the 3 year recovery out of it.

One is a play, pitched by everyone from Warren Buffett* to your friendly local Mom & Pop financial adviser (excepting you Michael, Gary, Mike, Paul and others I have come to know in the NFTRH subscriber base ;-)) and one is simply a no-dividend paying lump of enduring monetary value that simply keeps up with the value eroding policies employed by officials to try to keep the thing in the top panel and other indices like it around the world, inflated.

The SPX is rising strongly. Great! It is at resistance, which it may or may not break through. Okay fine. But an honest view of the chart shows an index that has benefited from TARP to QE2 to ZIRP on out to whatever the hell they are doing in the control room now; and still this mess, while near recovery highs is nowhere near all time highs.

Meanwhile, the relic in the bottom panel has formed a bullish flag after burning out last summer on the dangerous Euro panic momentum. Since then, the usual characters have jumped into the limelight with Gartman making a grand pronouncement, Roubini tweeting and taunting gold bugs and now Buffett ruminating from on high about gold’s lack of utility vs. stocks.

Look, I don’t know what the future holds, but I have seen enough of these media stars to know that they have not dealt me a straight hand since I was issued my ‘Gold Bugs Union, Local 350’ card a decade ago. As I was repeatedly told by one of my teachers back then, “gold is not about price, it is about value.”  Peoples’ buy, sell, hold or ‘do nothing’ decisions are their own. All I can tell you is that
gold remains – as it was when the bull market began against a credit bubble that was then just a twinkle in Greenspan’s eye – insurance against the destruction of the paper money of the realm.

Confidence in paper money is being systematically used and abused as the fuel to keep asset markets (including the Oracle’s beloved stocks) buoyant. Whether or not this policy succeeds in continuing to enrich asset holders, there is a place for the simple monetary relic that more than keeps pace with the process.

* Long-time gold bugs know that the mainstream serves up periodic shots at the barbarous relic (and its simple value proposition) by people pitching equities and other paper instruments, or otherwise serving masters other than the individual and her direct needs. This long-running tradition was most recently voiced by none other than the godof equities himself, the Oracle of Omaha.

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