Changing Sentiment Towards Gold?

It’s interesting how much the perception of gold has changed over time. Remember when anyone who invested in gold was scorned for being too pessimistic on the economy? Remember when gold was seen as a fringe investment that had no place in portfolios? Nowadays, far fewer people are calling gold a “barbaric relic”, perhaps because statements of this kind have made fools of many men. Now people are drawing the connection between gold and fiscal mismanagement. It took awhile, but people are starting to wake up and smell the roses.

I chuckle when I look back on braindead comments about gold. Remember when George Soros called gold the “ultimate bubble”, only for us to find out later that he was buying gold? That was a good one. Another braindead comment came from the Bank of Korea, which called gold an illusion. At the time I mocked these comments and said that I wouldn’t be surprised if South Korea’s gold holdings rose substantially in the coming years. Well what do you know? South Korea just added 25 tons of gold, which marks their first purchase of gold since 1998.

Everyone is going to come to their senses sooner or later. Central banks are starting to wake up, and their bullion purchases are bullish in that they help set a floor to prices. Countries like South Korea are not buying 25 tons of gold so they can sell it for a quick profit. They are buying and holding. Countries that want to park large amounts of capital basically have two choices: Treasuries or gold. For now, there are two safe havens; soon there will be only one.

Forecasts for gold that used to be mocked are now reality. The scary thing is you ain’t seen nothing yet. The national debt has risen 14x since Reagan took office while the price of gold has merely doubled. Stocks were 1:1 with gold in 1980, now the Dow is at 11,866 while gold is at 1,660. People who say gold is overvalued need to start thinking objectively. The only thing that will potentially stop gold from reaching $3,000 is a new currency that replaces the dollar. That’s it.

Our politicians have offered no viable solutions to the debt crisis, and this will be apparent in the years ahead. Just think about cash-for-clunkers, which incentivized people who owned their cars free and clear to take on debt for a new car. Think about the homebuyer tax credit, which incentivized people to buy overvalued homes that are now underwater. Government meddling in the economy has just made things worse. They are the problem, not the solution.

Gold is reflecting a serious loss of confidence in our government. Expect things to get much worse before they get better. Obscene gold prices are inevitable.

Changing Sentiment Towards Gold? is a post from: Expected Returns

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