>We recently received this question from a reader:
“You say that gold is going lower, but Edelson and others say that gold is going higher. Who should I believe?”
My first response was to ask, out loud no less: “Well who’s going to tell you NOT to believe them?”
Larry Edelson, and others who preach a similar view point on gold, use sound logic. That is, the U.S. government is running huge deficits while the Federal Reserve is printing $85 billion per month. Historically, there are some examples of countries doing this only to destroy their currencies, leaving gold as the good bet. And there’s no doubt these guys base their buy gold recommendation on exhaustive research.
Then again, so do we. We don’t take this position simply to be contrarian. Standing alone against a mob isn’t fun. We, too, have done exhaustive research: Decades upon decades of it, in fact. And in our view, gold is simply NOT all it’s hyped up to be.
Naturally, we want you to believe us. Our arguments are compelling and logical. We’ve honed them through intense debate with our opposition. We practice what we preach in our personal portfolios and financial set ups.
But the reader’s question is an important one, and one we see all too often. So here’s an honest answer for him and you…
Stop spending your time playing mental ping-pong and consider the situation.
For gold to shoot to dizzying heights, like Edelson and company believe, the U.S. dollar must fall dramatically. I don’t mean the dollar must fall by 10% or 20%. I’m talking about a 50% to 80% drop here.
At the same time, investors and savers would have to believe that other currencies are equally risky, and then choose to hold a significant portion of their wealth in gold.
Keep in mind, this is a precious metal that you can’t use to pay your bills, buy your food or secure a gallon of gas. It just sits there, gathering dust. It looks shiny, yes, but it still just sits there.
All of this would have to happen while the U.S. government – and other governments – did absolutely nothing.
Or, for us to be right that gold will remain muted and fall even lower, we need to see the U.S. dollar and other currencies remain relevant… and have our government and the governments of other nations remain intact.
Yes, they can devalue their currencies. They can work on solving their fiscal woes by taxing away more wealth. But as long as they stay in the game, then chances are the dollar, and other major currencies, won’t die anytime soon.
Also, we still have that pesky situation of private credit contraction…
European institutions aren’t lending and the U.S. credit picture is expanding only slightly because of student loans. The Chinese are lending, but it looks like a bubble that will pop.
Given this brief synopsis, take a few minutes and ask yourself: “Which one is more likely?”
If you still can’t arrive at an answer, then use a different metric. Look up a chart of the price of gold for the last couple of years. You’ll see a high of just over $1,900 and a current price of near $1,300. That should seal the deal.
As for me, well, I believe us, and I think you should too.
Ahead of the Curve with Adam O’Dell
Bloomberg ran a piece this morning titled, Gold Bears Retreat as Price Reaches Two-Month High. It was filled with the usual… some data, some commentary on well-known investors (Soros and Paulson), and a general lack of conclusions or actionable advice.