GOLD
Keep an Eye on Gold, Bonds in 2011
Bill Fleckenstein
Fleckenstein compares two important markets that are indicators for 2011: gold and bonds. Even in the early days of gold’s bull market, he believed gold prices would be driven by demand for the metal as an investment, not by interest in using it for jewelry. Back then, it was a novel thought. But after the dot.com bubble burst, it became clear the Fed would try to print its way out of the mess; the dollar would suffer and gold would benefit. The real estate bubble meant even more money printing, bolstering gold’s case, and investment demand has soared. In 2000, it accounted for 2% of gold’s market; in 2010, it accounted for 40% of gold’s market. Surprisingly, the number of gold bulls with any substantial allocation is still tiny. Fleckenstein explains why the stock markets, despite lackluster performance by many companies, are on a roll; it is a consequence of money printing. The additional liquidity usually flows into stocks, since the Fed's low-interest-rate policies make more conservative alternatives less attractive. Then psychology gets deranged and nonsense passes for knowledge. A similar theme has stopped the bond market rout from being regarded as bad news: Some believe the decline in the bond market is not about the Fed losing control of the printing press, but about economic activity surging. Thus, the weakness in bonds is (supposedly) good news. After the stock and real estate bubbles, the amount of machismo, bravado and downright cluelessness on display amongst investors is astounding. Sadly, it seems that Wall Street has learned little from its experience in 2008. Fleckenstein believes that 2011 will reacquaint it with the fact that financial assets can be expensive.
The One Reason You Have to Own Gold and Silver
Jordan Roy-Byrne
There are many reasons for gold’s current bull market: emerging market demand, low interest rates, money printing, central bank accumulation, central bank policies and falling gold production. These are all good reasons, but the reason that stands apart and will drive precious metals to amazing heights is the impending sovereign debt default of the West, led by the US. Jordan Roy-Byrne describes the circumstances that amount to a no-way-out situation for America, Europe and Japan, circumstances that have gold and silver reacting more strongly than at any other point in this bull market. They performed well when rates were low, and are likely to perform even better when rates start to rise. “This is why,” he writes, “we implore you to at least consider gold and silver.”
The Effects of Central Banking on Gold and Paper Currencies
Eric Fry
It is ludicrous to think that an entire economy can be steered by adjusting one interest rate, or that one institution can nurture economic growth simply by printing money. Yet a nation of investors places its faith in central banking every business day. Central bankers consider their activities to be not just a responsibility but an imperative; a social duty; a calling. Far from having mystical powers, however, central bankers have meddled to such an extreme that currency values are perpetually in decline. Observing this trend, rational investors look for assets the central bankers are not trying to protect – assets that require no protection whatsoever. Gold is the obvious choice. It is the timeless choice of all investors who reject the cult of central banking and who distrust paper currencies as a store of value. Gold is rising because central banking is in a bubble. The gold bubble will not arrive until the central banking bubble bursts, when investors spurn the cult of central banking and rebuke the bankers as agents of wealth destruction. When that moment comes, an ounce of gold could cost more than $10,000 an ounce.
Why Gold Investors Are Still in the Minority
Joel Bowman
Bowman wonders about the contrarian mindset. Is it inherent? Is it genetic? Why do some folk stray from the herd, while others follow like sheep? There is little doubt that, in the world of investing, it pays to be in the minority. Some commentators divide the crowd into unequal portions: the minority constitutes the “smart” money; the majority represents the “dumb” money, on which the minority happily feeds. As Rick Rule said, when it comes to investing, you are either a contrarian or a victim. Necessarily, the smart money must be a minority. The moniker is afforded, at various times, to bond traders, short sellers and industry insiders. Whatever their position, they must be ahead of the curve, ready to sell at the point of maximum demand and to buy at the moment of minimum interest. Though not entirely dependent on the status quo, a contrarian’s position is almost always in opposition to it. It is helpful, therefore, to ask what the accepted norm of the day is. Today, the financial, economic and political systems are built on lies: that people can grow rich by spending more than they earn; that companies can achieve success by producing things people don’t buy; that real estate prices always go higher; that a debt-ridden economy can recover by piling on more debt, debasing its currency and lying to the masses about what it is doing. In contrast, gold is incorruptibly honest. Fiat money worshippers won’t touch it. Central bankers can’t compromise its virtue. It is nobody else’s liability. That is why, to the majority, it remains a barbarous relic. But for the rest of us, like honesty, it is still the best policy.
