By Bill Bonner – billbonnersdiary.
Will gold be the “worst investment of 2013”?
Has been so far…
Gold held above $1,600/oz yesterday. You’d think it would do better. Ben Bernanke just pledged to keep his printing presses whirring… even though some areas of the economy — such as housing — are improving.
Won’t an improving economy bring more of this printing press money out in the open… where it will bid up prices?
And if the economy doesn’t improve, won’t Ben Bernanke keep printing
money… even increasing the output of his dollar-printing machines…
until the old buck finally gives way?
So, why is gold doing so badly? Is the bull market in gold, which began nearly 14 years ago, finally over?
Buried Treasure
Those questions were put to a panel of which we were part, in
Cafayate last weekend. The questioners were mostly “hard money” people.
The questioned, including your editor, had a generally gold-buggish bias
too.
So, what were the answers?
We can only recall our own:
“A couple years ago a cache of gold objects and coins was found in
Yorkshire. These were items that had probably been buried to hide them
from the fighting that was going on in the area during the 8th century.
No one knows what happened to the owners, but they never returned to dig
up the treasure. Instead, it was found by accident, 1,300 years later.
“And yet the gold of which the objects were made is just as good as
it was then. And the value of it — compared to goods and services on
offer — is also about the same, at least inasmuch as we are able to
piece together prices from that era and compare them with prices today.
“That… and everything else we know about it… leads me to believe
that gold in the future will be worth more or less what it is worth
today too. In our lifetimes, we’ve seen gold go up and go down. But it
doesn’t go away. And if you had gone out to buy a new Buick in 1935 or
so… you would have paid for it with about 25 gold ounce coins. You can
do that today, too.
Thinking for the Long Run
“So, if you are thinking of the long run, you will definitely want to
hold gold rather than shares in today’s corporations… or today’s
paper dollars… or promises by government to repay you in its own IOU
paper currency.
“Of course, I know that many of you are not concerned with the long
run. In the long run we’re all dead. So what does matter? It’s the short
run that matters. And in the short run what is gold likely to do?
“Who knows? But it would be very strange for a 14-year bull market to
end with its subject still reasonably priced. Typically, they end with
unreasonable prices.
“Gold is not especially overpriced now. There is no gold mania happening. The cover of TIME
magazine is not featuring a gold coin or predicting the end of paper
money. Adjusted for even the Bureau of Labor Statistic’s inflation rate,
gold still hasn’t come near its high set 32 years ago.
“Most people in America have still never seen a gold coin. But they
will. Unless this time really is different… unless this really is a
new monetary era… you can presume that what happened in the past will
happen again. And what happened in the past was that paper money systems
always blew up and gold always becomes infinitely expensive in terms of
the depreciating paper money.
“We don’t know when this will happen. But we don’t see any reason why
it shouldn’t. They keep telling us that the Fed is doing no harm by
printing $85 billion more each month.
“Official inflation rates are low… and falling, they say. But if
they calculated the inflation rate the way they did when people were
wearing Whip Inflation Now buttons, back in the Carter years, the CPI would be at 9.6%. And bond yields would be at 10% or 12%.
“… and people would be struggling to pay 13% mortgages… and the
feds would be desperate to sell bonds with 15% coupons… and the dollar
would be collapsing… and the entire system would have the shakes…
“… and we wouldn’t be having this discussion. We’d all be expecting
inflation to hit 20% and happily waiting for gold to reach $5,000 an
ounce.
“No one in this room or anywhere else knows where the price of gold
is going next year or the year after. All we know is that the risks of
owning it are fairly low… while the risks of not owning it are high.”
Regards,
Bill
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