Published: November 10, 2010
"Is gold going vertical?"
The question was put to us by our Family Office
strategist, Rob Marstrand.
"We could be getting to the final stage of this bull market
faster than we thought," he added.
Yesterday, the price of gold rose to new record - over $1,400.
This was also the day that news reached the world that the head
of the World Bank had defected. Mr. Zoellick jumped the
fence...he's no longer among the dopes.
You know who we're talking about...the vain and foolish
economists who think central planning will work. "Give the
economy more liquidity!" "Raise rates!" "More fiscal stimulus!"
These guys act like they know what they are talking about. But
they are quacks. Mountebanks. Phonies.
Not Zoellick. He said it was time to begin talking about a new
Gold jumped $5. What can stop it now?
But there's always a surprise, isn't there? We know that the
dollar is going the way of all paper - to the dump. Maybe the
surprise is how long it takes to get there.
Maybe gold is going vertical. Or maybe it is just toying with
A friend came to us over the weekend. He had four Austrian
Corona 1 oz. gold coins. He wanted to sell them.
"I just need some cash now. It breaks my heart to sell them, but
I've got to pay expenses."
The expenses were a little unusual. He was buying a ticket for a
Vietnamese woman and her children to come to the US to live. But
that's another story...
Somehow, your author has gotten a local reputation as a buyer of
gold coins. So much the better. We're not trading. We're not
investing. We're just adding a coin now and then to our
collection. We buy. We put them away. We forget about them.
"But at $1,400 an ounce?" you ask. "Isn't gold in a bubble?"
Well, yes...and no. We liked buying the coins much more at $500
than we do today at $1,400. The price makes us a little nervous.
Gold is in a bull market, not yet a bubble. It will probably
stay in a bull market for a long time - until they re-establish
a gold standard for paper money...or until the international
monetary system cracks up...whichever comes first.
But there's something a little dangerous about $1,400 gold. Too
much, too fast. Of course, in the final stage of the bull
market, the yellow metal will trade for far more. Ordinary
people will buy gold to protect themselves from inflation.
They'll get sick of watching prices on bread, diapers and
gasoline go up. They'll be desperate to grab hold of something
more stable. They'll buy gold at almost any price.
But we're not there yet. There's very little consumer price
inflation now. The inflation we're experiencing so far is the
monetary kind - an inflation of the monetary base, not consumer
prices. No one particularly cares about this kind of inflation.
The other kind of inflation - in the CPI - could still be years
Right now, the economy is still de-leveraging. Bloomberg
has the news:
US households cut their debt last quarter, borrowing less
against homes and closing credit card accounts, according to a
survey by the Federal Reserve Bank of New York.
Consumer indebtedness totaled $11.6 trillion at the end of
September, down $110 billion, or 0.9 percent from the end of
June, according to the New York Fed's quarterly report on
household debt and credit. Households have slashed about $1
trillion from outstanding consumer debts since the peak in the
third quarter of 2008, the New York Fed said.
US households, facing a jobless rate that's persisted near a
26-year high, have slashed debt and increased savings following
the worst financial crisis since the Great Depression. That's
pared consumer spending and slowed the economic recovery,
helping to prompt the Fed's decision last week to start another
round of unconventional monetary stimulus.
"Consumer debt is declining but only part of the reduction is
attributable to defaults or charge-offs," Donghoon Lee, a senior
economist at the New York Fed, said in a statement. "Americans
are borrowing less and paying off more debt than in the recent
past. This change, which we continue to study carefully, can be
a result of both tightening credit standards and voluntary
changes in saving behavior."
People still lack jobs...which means, they still lack money. And
while they lack money, they need to cut back on their spending -
which helps keep prices down.
The common man is not fretting about inflation. He's not
worrying about his savings or the cash in his pocket. He's not
desperate to get out of the dollar. Au contraire, he'd like to
get into some cash...so he could pay his bills.
Which brings us back to this weekend's transaction. If the gold
market had entered its third and final stage, our friend
wouldn't have come over to offer us gold coins. Instead, he'd be
holding onto his gold and would be desperate to get more of it.
"But what if he needed to buy something - like airline tickets?"
you ask. "You can't buy things with gold."
True enough. But when we get to the last stage of the gold
market...when gold really does go vertical...gold will be the
LAST thing people will sell. Gold may have gone up $5 yesterday.
But in the final stage it will go up a hundred dollars per
Yes, dear reader, the excitement is still ahead. More hurrahs
for the gold market. More profits for gold investors.
Trouble is, it could be far ahead.
-- Bill Bonner
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