Guest Post: Should You Trust Your Instincts on Gold?
Authored by Dennis Miller, Excerpted from full report at Casey Research,
There are certain potential catastrophes that can be so threatening we must take steps to insure ourselves even though the probability of one actually occurring is slim. It’s like keeping a small fire extinguisher under your kitchen sink and hoping you never have to use it. I cannot put my life savings and my family at risk by trivializing dangers potentially on the horizon.
While CNBC may want to pooh-pooh the probability of something similar happening in our country, we all know that creating massive amounts of currency out of thin air always results in the currency collapsing, or at the very least being revalued in a way that most of us will suffer from. A prudent investor (particularly one on either side of the cusp of retirement) would do well to take out some insurance. That is generally done by investing in metal, farm land, and other forms of hard assets.
In the same Bloomberg article quoting Ms. Yellen, there is another clue for us: "Kansas City Fed President Esther George has warned that prices of some farm land have hit 'historically high levels.'" I’ve heard the same thing from folks in America’s heartland when I recently visited family in Illinois. I wonder if the CNBC folks think that is a mere coincidence.
In the fall of 2011, I attended the Casey Summit, which featured three speakers who had lived through hyperinflation in their home countries. They shared their personal experiences with us and I shared some of this in an article earlier this summer.
All three speakers went through very similar cycles. All said inflation was rising and then it spiked to astronomical proportions.
The following are a couple of slides used by the speaker from the former Yugoslavia. Note the last line that indicated that during its hyperinflation, prices doubled on average every 1.4 days.
The presenter showed a 500-billion denominated bill, which had the same purchasing power a 500 bill had just 24 months earlier. His slides documented the hyperinflation, starting at 5.00 and building up to 500 billion.
Can this happen in the United States? Are we immune from the natural laws of economics?
We see inflation on the rise in the US and know our government is not telling us the truth about it. We have discussed the record debt and Federal Reserve spending until we are blue in the face. And we know that very few of our elected officials are serious about significant cuts to federal spending to rein in debt and borrowing.
So what do we do right now?
I have yet to see anyone present any logical economic premise that concludes that our country will not eventually see a currency collapse. Many have put us down, called us "gold nuts" and the like, and trivialized our concerns. Just show me the facts.
Instead, I see several clues that reinforce my concerns. Throughout history thousands of currencies have collapsed, but precious metals have held their value. It should come as no surprise to learn that over the last few years China, Russia, and many central banks have been stockpiling gold. Germany and Venezuela quietly announced earlier this year that they are repatriating their gold stores overseas - not coincidentally mostly from the US - back to their shores. Not wanting to start a panic or gold rush, they played it down by saying they just think it is easier to store their metal inside their own borders. It sits in a lump and earns no interest whether at home or abroad, so there must be a good reason why they are going through all that effort and expense.
At Casey Research, we have regular editors' conferences. The subject of two of the more animated ones earlier this year was precious metals and the direction of the market. If I may summarize, we came to several conclusions.
1. We may be in for a rough ride in the short term; however, the fundamental reasons for owning gold and silver have not changed.
2. The reasons to own gold and silver are more evident than ever before.
3. At the end of the day, none of us is selling, and we are going to be ever alert for some terrific buying opportunities as they come up.
Sure, all the contraptions on the airplane might be telling us everything is just fine: the Dow reaches new highs; unemployment drops another tenth of a point; and cheap credit is endless. But as experienced pilots, we're reading into the market beyond what the gauges are saying. That's the sort of insight that can mean the difference between a crash landing and a takeoff for the value of your portfolio.
So is gold going to start charging upward or take another nosedive any time soon, or just plod along in a tight range? I don’t know. At least not for the short term, but long term it seems the fundamentals point upward.
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