We are NOT gold bugs; Are You?

When I give speeches, I love the Q&A part of the program. It gives me the chance to connect with people, to hear what’s on their minds and to provide, as best I can, insight on what might lie ahead.

The topics people want to discuss change with the times, , such as the death of brick and mortar companies in the late 1990s, the implications of Y2K in the year 2000, the possibility of huge personal security spending in 2001, immigration, outsourcing, the death of the financial system, and now the death of the euro.

However, some topics of interest are evergreens. Interest rates are always front and center of people’s minds. For the last several years, gold has been a hot topic.

But gold is different. Instead of being something people want to talk about, it’s something people want to either defend or crucify… without much middle ground. And that is where the problem lies…

Here at Survive & Prosper, we are NOT gold bugs.

Nor are we gold-haters.

We are merely observers of economies, markets and trends. This puts us at odds with both gold bugs and gold-haters because we don’t clearly stake out a position and hold onto it for dear life. We don’t do this because we don’t see how either position is supported by the facts.

Ultimately, the question is: what is gold worth? Typically, the answer is given in terms of a currency. An ounce of gold is worth so many dollars or euros.

How do you know? Because the screen said so.

What Will Gold Be Worth in a Year

But what will gold be worth in a year? Ah, that’s a more challenging question. The short answer is that gold’s “worth” is a combination of what’s happening with monetary and credit expansion and whatever you think the value should be.

Credit and monetary expansion is easy. If they’re growing, the value of gold in dollars or euros should move up.

The “whatever you think the value of gold should be” is the hard part. And this is where people get angry.

“Gold should be at $5,000 per ounce because our government is killing the currency!” is a common cry among the gold bugs.

Or, “Gold should be priced for its use as jewelry, around $100 per ounce, because it is not part of the monetary system,” to quote the gold-haters.

But how about a third rail? Instead of gold being worth nothing or a zillion dollars, can’t it be a fluctuating barometer of current demand and views, exacerbated by ETFs like GLD? If you found the last sentence boring, well, it was meant to be. Because that’s how we see the metal. Boring. For now.

In the current economic climate, which we call the Economic Winter Season, gold has risen sharply in response to fears about economic collapse. Along the way we’ve seen central banks take extraordinary measures to pump up financial systems while private and public debtors collapse their credit (think mortgage write-downs, credit card charge-offs, GM bankruptcy and Greek debt cram-down). These opposing forces keep fighting over the direction of overall money and credit.

At the same time, the fear trade is long in the tooth. This doesn’t mean investors no longer fear economic collapse or upheaval. It just means we’ve lived with it for some time. It’s become normal.

So this leaves us with the mushy middle.

Gold is around $1,620 an ounce, having visited just over $1,900 and dropping back down to near $1,500. So what’s next?

Our view is that while it could be up near $1,800 in the short term, the next move for gold, out of this current range between $1,500 and $1,900, is most likely lower… potentially much lower. Think sub $1,000.

The reason? A debt implosion that sends credit falling in on itself, and a corresponding spike in the U.S. dollar. This would likely happen in 2013 as the euro zone finally gives up the ghost and theU.S.recognizes the extent of the continued housing debacle.

What this means for gold bugs is continued frustration at the lack of respect the barbaric relic receives. For gold-haters it means continuing to deal with invitations to attend “sell your gold” parties… and enduring the ads on TV that show how gold owners have out-earned equity markets by many times over in the last decade.

In short, both sides face inevitable frustration.

I guess, for some, gold is still a bad four letter word. For the rest of us, we’ll keep an eye on the gold metal, but look elsewhere for returns.


Rodney

P.S. We’ve already identified several opportunities that will reward us with returns, regardless of what gold does. We have alerted Boom & Bust subscribers to these, and we monitor these positions closely as part of our promise to our members. We also scour the markets each month to find new opportunities to take advantage of. Right now, we’re entering the final stages of our research on TWO particular investments, which we’ll reveal in the next two weeks. Make sure you get the details.

 

Ahead of the Curve with Adam O’Dell

Gold: Broken?

In mid-March, I told Survive & Prosper subscribers that gold was trading in “no man’s land.” This is the range – $1,500 to $1,900 – that Rodney describes above.

When I wrote this, gold was smack in the middle of the range. It really was a 50/50 chance that gold would go up or down… at least from the technical chartist’s perspective.

Today we have a clearer picture of gold.

What You Need to Know About the Safe-Asset Slaughter!

You’re not going to believe what’s on the horizon…

The final bubble of the recent financial crisis is about to burst. When it pops – it could be as soon as November 2014 – millions of Americans will be financially devastated… But others will have the opportunity to get much richer.

This controversial video reveals how you can end up on the winning side of the coming carnage…

Click to Learn More
Categories: Economy

About Author

Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.