No Place for a Gold Bug

That is no country for gold bugs
The young in one another’s tattooed arms
Birds in the trees
Those dying generations…sick with desire
And fastened to a dying economy

Dear Readers who wish to understand what is going on in today’s economy might want to read Yeats’ poem — ‘Sailing to Byzantium.’ In our view, we are all en route to Byzantium…or perhaps to Rome.

We are bound for romantic decay…or a grubby fight to the finish. We will see.

But this is no place for gold’s final bubble. Not here. Not now. Not yet.

Gold “hit the wall” yesterday, says one headline.

“Biggest break in gold in 30 years,” says another.

As anticipated, gold is getting whacked. But what kind of whack is it?

To speculators on the wrong side of the trade, it was catastrophic. But was it serious? Maybe. Maybe not.

We’ve already given you our big prediction on gold. No point in saying anymore.

The bull market in gold began at the end of the ’90s. It will keep going until the price of gold intersects the price of the Dow. Currently, the Dow is over 10,000…and going up. Yesterday, it rose 143 points.

Gold, meanwhile, is going down. December contracts lost $104 yesterday. At one point, the spot price was down $150. It now costs less than $1,800 to buy an ounce of the stuff.

So, there’s still a WIDE gap between the Dow and gold, and it’s getting wider. Will it ever close? Who knows? But that’s our bet. And if we’re even close we’ll call it a success.

Because what it tells us is that the movements in gold and in stocks are long and big. And if you want to make real money, you focus on these big movements, not in the day to day price frenzy.

The way we see it, the time to get into stocks was in August 1982. Or anytime in the ’80s. Stocks went up for years…until the Dow finally peaked in January 2000. It had gained more than 1,000% — a 10 bagger, as investors like to say.

But then what? Then, forget stocks. January 2000 was the time to get into gold. There was a bust in the stock market in the early ’00s…followed by intervention from the feds…which led to a huge bubble. That bubble blew up in ’08-’09…sawing the Dow almost in half. Since then, another more massive meddling by the feds has moved the Dow back up. But to where? Around the same place it cracked 11 years ago.

In other words, for all the sturm and drang in the stock market over the last 11 years, investors have made nothing. Not even nothing. Less than nothing. A barrel of oil was $25 in 2000. Now, it’s over $80. More than 3 times as much. Prices have gone up for everything…while the stock market investor has not a penny more than he had when Bill Clinton left the White House.

The gold buyer, on the other hand, has 5 times as much money — even after yesterday’s big whack.

He who laughs last laughs best.

Yesterday, stock market investors got to laugh at the gold bugs. It’s time they had a chuckle. They’ve waited years for it. And our guess is that they’ll have plenty more laughs in the months…and years…ahead.

Because this is no place for a gold bug. Not really. We are fastened to a whole herd of dying animals — the credit expansion…the housing decline…Keynesian economic theory…the dollar-based monetary system…the social welfare political model…the bankrupt empire…the declining marginal utility of military force, debt and oil…and all those dying generations themselves. And we could probably think of more! All of them, in their dotage, will drag down prices…including, perhaps, even the price of gold.

We will have to wait for these wretched things to die. Then, when they are out of their misery and out of the way…or brushed aside by a desperate Fed…the next stage of gold’s bull market can begin.

And more thoughts…

Conversation with a Dublin cab driver:

“You Americans are lucky, sure you are. You can just walk away from a house. If I could do that, I’d be out tomorrow. But here, if you owe money on a mortgage the bank can come after you. You can never get away.

“I got married about 4 years ago. My wife and I both worked. We had good jobs. We were earning good money. And we believed all that BS about how property would just go up and up forever.

“So we bought an apartment for 360,000 euros. It was only supposed to be temporary, because we wanted to have a family and we figured we’d get a house after we started having children.

“Well, we’ve got 2 kids already and another on the way. And we’re still in the apartment. And we can’t move. Because the place is now only worth about 160,000 euros — would you believe it? It’s come down that much. And I can’t make the mortgage payments.

“My wife lost her job when the trouble began. And now, with all those children she can’t go back to work anyway. And driving a cab isn’t what it used to be. Every time someone loses his job in Dublin, he starts driving a cab. There are empty cabs all over the place. So, I don’t make nearly as much money as I used to. And with my wife not working, I can’t pay the mortgage.

“So I went to the bank. You know they are all broke. All the banks in Ireland. You’d think they’d like to see an honest homeowner trying to do the right thing.

“I told them I couldn’t keep up with the payments. I asked them if we could work something out, since the apartment is only worth less than half the mortgage amount. But they wouldn’t even talk to me. I guess they have someone breathing down their neck too.

“So I just send them half the money I’m supposed to. It’s all I can do. And I figure they won’t kick me out. Not in Ireland. Ireland has a long history with evictions. It used to be that English property owners would evict their poor Irish tenants. So, now eviction is a bad word in Ireland, almost as bad as slavery in America, I guess. The banks — which have all been bailed out by the taxpayers — don’t want to be seen on TV evicting their tenants now. So I guess I’ll just keep sending them half the mortgage payment. I’ll probably be there for a long time.

“But sooner or later they’ll have to do something. There are 70,000 people in Dublin who aren’t paying their mortgages. And there’s no way they can pay them. The banks are going to have recognize, sooner or later, that they made a mistake lending all that money to us.”


Bill Bonner,
for Markets and Money

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.
Bill Bonner

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3 Comments on "No Place for a Gold Bug"

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Rick W
You stated ” while the stock market investor has not a penny more than he had when Bill Clinton left the White House.” If the stack market investors stayed in the market they would have the dividends compounding. So you should include this factor when making comparisons against other prospective investments. Your example of oil going from $25 to $80 is a somewhat modest 12% compound over the 10 year journey. A lot better than most dividends but then some US companies did pay dividends not zilch as your comparison suggests. With regard to oil my current car is slightly… Read more »

Gee Rick it would really suck having to go through life and everything was just an annoying paradox

Michaell C
At any other time in history i would say gold would fulfil the function of being a useful valueable method for storing or retaing wealth/purchasing power. In my opinion gold can only have value when there is clean air, food and water and healthy economies. Sooner or later, what is valuable and what is not will be revealed. It may just end up that the central banks and a few gold enthusiasts will be left selling gold back and forth to each other while all that will be of value in the real world is exactly that clean food and… Read more »
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