September 13, 2013
Hong Kong
Financial circles in
Hong Kong are buzzing today on the new Goldman Sachs projection that gold
may drop below $1,000 an ounce.
And in merely
suggesting such a death sentence for the metal, Goldman's pronouncement
pushed the paper price of gold contracts down $20+.
Many technical
indicators underscore Goldman's views. There's very little floor for gold
prices below $1,200, signaling that gold could gap down quickly.
Conventional wisdom is
also moving against precious metals. Newspaper headlines are telling us
that emerging markets are toast (India, Indonesia, Brazil) while the
developed economies (US, Europe, Japan) are on the mend.
Of course, the facts
don't really support this.
- Unemployment in much of southern Europe continues
to soar, and Greece is imminently in need of yet another bailout.
- The Japanese government's most recent budget
numbers indicate payments on the national debt totaling 22.2 trillion
yen, which constitutes 51.5% of the government's 43 trillion yen tax
revenue.
- In the Land of the Free, the US government is just
a few weeks away from defaulting. Again.
Since May, in fact, the
US Treasury Department has resorted to 'extraordinary measures' to keep the
debt level firm at $16.7 trillion (the current debt ceiling) by using
clever accounting tricks and confiscating funds from other sources.
As soon as the debt
ceiling is raised, however, the national debt in the US will soar once
again as these accounting tricks are unwound and reflected on the balance
sheet.
For whatever reason,
though, few people are paying attention to facts. It's all about sentiment.
And the sentiment right now is that the rich Western economies are back on
top.
This is the central
thesis underpinning Goldman's assessment on gold: since the US economy is
out of the woods, there's no longer a need for gold as a risk hedge.
But as my friend told
me last night over drinks, "Nobody knows what the f**k is going
on..."
He's a senior-level
manager at a major international investment bank, and fully expects the
banking system to go under again.
I thought about his
candid remarks this morning when I read Goldman's projection on gold.
But it does beg the
question-- is it time to get out of precious metals? After all, the
momentum is moving in that direction.
Well, if you buy gold
hoping to sell it at some point in the future and receive more fiat
currency than you paid, then you might as well get out. Gold is not a great
speculation right now.
Think about it like
this-- and take 'gold' out of the equation. If the market for widgets had
risen 10, 11, 12 years in a row, and had shattered all records for
long-term performance, would you still be betting on a rise?
Probably not. Just like
housing (which everyone thought would go up forever), gold's nominal paper
price can fall. And it makes far more sense to speculate on something
that's in the dumps right now.
However, this mentality
entirely misses the point of precious metals.
Why buy gold hoping to
gain more paper currency down the road? Owning gold is all about trading
away your paper currency into something that cannot be conjured out of thin
air by central banks.
When stored properly
(holding physical gold overseas and/or anonymously), there is very little
counterparty risk.
The "price"
in paper currency may rise. Or it may fall. But this is largely irrelevant.
When the hopes and
reams of the entire global financial system rest on the lies of
politicians, the whims of central bankers, and the mountains of debt they
have all accumulated, things could turn on a dime... tomorrow.
Gold is an insurance policy.
It's a form of money that you might never need to use. But should that need
ever arise, you'll be so much better off for owning it.
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