Gold Investment

There seems to be many more analysts who keep trying to predict the future price of gold and silver based on charts, historical figures, bullion supply and demand problems and even magic. I’m more and more resistant to these analysts as I start to realize that no one has ever been right, except out of luck. Finding the correct analysis this week is just a process of elimination — someone is right, most are wrong. As Orson Scott Card said in Ender’s Game, “The only process you’ve mastered is the process of elimination, and the only reason you’ve mastered that is because you can do it in the toilet.”

That is how I feel on the majority of gold analysts today. The charts on gold and silver have never been repeated, and they’ll never repeat. Gold is a metal that has 4 main customer bases that are all disturbed by each other, don’t trust each other, and don’t want each other to do what they’re doing. This isn’t bananas or corn we’re talking about, things that rot and spoil but are easily replaced. This isn’t cement or dirt or steel — items that are common everywhere and cost more to ship than produce. Gold is a metal that lasts forever, is nearly impossible to counterfeit, and has been part of society since pre-Biblical days. Sure it is not considered money by most, but most people don’t realize they’re financially bankrupt until a few days before retirement. Paper money is all about the process of eliminating wealth in the lower and middle class.

Gold and silver are cheap if you compare their price to any chart of any consumer good or commodity over 50 years. One could argue that gold and silver have not been a good store of wealth because they haven’t kept up with the money supply growth. But I’ve made the same mistakes that many gold analysts make, and I’m working to extricate myself from their way of thinking.

You can’t judge gold’s value based on the growth of the US money supply — that number is irrelevant. The only way you can judge gold’s value is by looking at 3 figures: Gold’s current available supply, total World Currency supply, gold’s current price. Compare these 3 figures at any point in time and you have an idea of where gold should be, but even this is a faulty comparison. If there is a large increase in the entire world’s total money supply, that money may be spent faster in non-metal markets (housing, manufacturing, retail, industrial, consumer goods, capital growht) because the inflation of money creates a faster rise in prices in those areas. More money supply growth means the charts go up even faster, with gold and silver lagging.

Where gold and silver will be of utmost importance as a hedge against government idiocy is when all that new money supply is NOT being used in the world market — when one country’s currency stays in that country. This is where inflation will go crazy, and where added spending won’t really make the country wealthier as their inflating currency will buy less from everyone else. In this situation, other countries may prefer to barter and trade with one another with a non-inflating money (noteably gold, silver or oil). I can see this happening if enough free market businessmen enter the market over the next 20 years — they may see that the real wealth is not in how many commas you have on your asset statement but how many ounces you have.

Consider that most people today see profit in housing and the stock market — two markets that are so volatile in true value that it is almost impossible to gauge if you’ve profited or not. By the time you sell your investment assets, you may have more dollars than you started with but will those dollars buy you more than the old ones did? Since we see housing and stock markets jump 10-20% in various periods, the supply of new money tends to fall into these markets. This causes the markets to move higher (a sideproduct of inflation) even without more efficient or profitable companies (or houses). This also reduces the supply of money used to buy gold, which keeps gold’s price movement slower than these other markets.

If you want to see gold and silver rocket, you have to see an increase of people in the world who start to realize that paper money is garbage, and digital currency is even worse. The Americans will likely never realize this until they’re stuck to only buying US goods (and US produced goods will likely come from factories owned by foreigners!). The Chinese and Indians might have an idea, but only time will tell.

To me, gold and silver are incredibly cheap right now, maybe as much as 20-50% cheaper than I’d expect them to be. I’d still buy gold today at US$950 and silver at US$30. I believe both have much more room to grow, but I will not base that judgement on “experts” with charts and graphs and history to review. That history is based on other manipulations going on in the various markets, by the various governments and by the various experts at that time who were profiting with every word you read.

Discuss this article at the gold investment forum.